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Assumptions: Convertible Bond Analysis

This document analyzes a convertible bond with a market price of $110 and a conversion ratio of 35 shares per bond. The minimum value of the bond is $110 since its conversion value of $87.50 per share is below the market price. The market conversion price is $31.43 per share, representing a premium of $6.43 or 25.71% above the stock price. The bond offers a higher current income than the converted shares and the premium would be paid back in 7.32 years. The bond trades at an 11.68% premium over its straight value without conversion.

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48 views1 page

Assumptions: Convertible Bond Analysis

This document analyzes a convertible bond with a market price of $110 and a conversion ratio of 35 shares per bond. The minimum value of the bond is $110 since its conversion value of $87.50 per share is below the market price. The market conversion price is $31.43 per share, representing a premium of $6.43 or 25.71% above the stock price. The bond offers a higher current income than the converted shares and the premium would be paid back in 7.32 years. The bond trades at an 11.68% premium over its straight value without conversion.

Uploaded by

no name
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Convertible Bond Analysis

Assumptions
Market Price of Common Stock $ 25.00
Dividend Per Share $ 0.55
Market Price of Convertible Bond $ 110.00
Convertible Coupon 5.00%
Conversion Ratio 35.00

Straight Value $ 98.50

Minimum Value Calculation


Conversion Value $ 87.50
Minimum Value $ 110.00

Market Conversion Price


Market Conversion Price $ 31.43
Market Conversion Premium Per Share $ 6.43
Market Conversion Premium Ratio 25.71%

Current Income Analysis


Coupon Interest From Bond $ 50.00
Conversion Ratio x Dividend Per Share $ 19.25
Favorable Income Differential Per Share $ 0.88
Premium Payback Period 7.32 years

Downside Risk
Premium Over Straight Value 11.68%

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