Convertible bonds, Financial Management

Assignment Help:

Convertible bonds are the debt instruments issued which can be converted after a pre-specified date for a pre-specified number of securities (generally equity stock). It is necessary that all other relevant inform about the conversion of the bonds should be clearly given in the offer document of the convertible bond.

Investor has the choice to convert or not convert the bonds into stocks. If he chooses not to convert the bonds into stock then he will keep receiving interest payments from the company. In the other case, he will get a specific number of equity shares of the company. Since the investor is getting the conversion privilege, he/she will accept a lower coupon rate for a convertible bond compared with an otherwise identical non-convertible bond (i.e., a non-convertible bond with same credit rating, the same term to maturity, etc.). Thus, we can conclude that convertible bonds may have a lower cost of capital in comparison to non-convertible bonds with same caracteristics. It may be possible that when conversion of bonds becomes due the conversion price is lower than the market price of the share. In such a scenario the company will loose what it earned because of lower cost of capital. Therefore, it is very necessary that the company should set the conversion price very carefully.


Related Discussions:- Convertible bonds

Registered and unregistered bonds, On the basis of transferability, d...

On the basis of transferability, debentures can be classified as registered and unregistered debentures. Unregistered debentures (or bearer debentures) are freely

Yield curve risk, The graphical representation of the relationship between ...

The graphical representation of the relationship between yield and maturity is known as yield curve. Yield curve risk is the risk of experiencing an adverse

Importance of the cost of capital, Q. Importance of the cost of capital? ...

Q. Importance of the cost of capital? 1. Evaluating financial performance: the actual profitability of the project is compared to the projected overall cost of capital and th

Standard deviation for every project, AOT limited is considering two mutual...

AOT limited is considering two mutually exclusive projects - cable and satellite.  The possible NPVs for every project and their associated probabilities are as follows: Cable:

Activity-based costing - abc, An accounting technique that identifies the a...

An accounting technique that identifies the activities that a firm does, and then allocates indirect costs to products. An activity based costing (ABC) system finds the relationshi

Calculate the cumulative probability , Compound options are usually cheaper...

Compound options are usually cheaper than vanilla options and we know that there are four main types of compound options: a call on a call; a put on a call; a call on a put; a put

APPLICABILITY OF OPERATING CYCLE, #questioDiscuss the applicability of an o...

#questioDiscuss the applicability of an operating cycle in the vegetable growing business n..

Risk of portfolio if asset of low correlation are combined, What happens to...

What happens to the riskiness of a portfolio if assets with very low correlations (even negative correlations) are combined? How successfully diversification decreases risk reli

Explain arr and payback, ARR AND PAYBACK (a) Accounting rate of retur...

ARR AND PAYBACK (a) Accounting rate of return (ARR) is a computation of the return on an investment where the annual profit prior to interest and tax is expressed as a percen

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd