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mdfb79

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tT
发表于 2011-7-13 16:16 | 只看该作者

Convertible bond- premium over straight value

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Convertible bond- premium over straight value

"holding all other factors constant, the greater premium over straight value, the less attractive the Convertible bond."

i dont understand. I think, straight value is the floor of CB, so the lower the floor, the more increase room the CB has. Can someone help me explain this with a example? thx!
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ppls

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2#
发表于 2011-7-13 16:16 | 只看该作者
Market price of bond = 1000.

scenario 1: # of share: 10 @ $50 each. Total conversion price = $500.
scenario 2: # of share: 10 @ $95 each. Total conversion price = $950.

which one is better?

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troymo

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3#
发表于 2011-7-13 16:16 | 只看该作者
i dont know. i am stupid. haha

from the formula, i guess b. dont laugh at me!

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CPATrader

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4#
发表于 2011-7-13 16:16 | 只看该作者
The greater the premium, there is less of upside return compared to a bond without the conversion option which would lead to less attractiveness of the bond

However , due to the straight value it protects the downside risk.

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maryli

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5#
发表于 2011-7-13 16:17 | 只看该作者
Just think of what the statement is saying. Would you possibly want to pay more of a premium on anything when you don't have to? When you go to purchase a car are you going to tell the dealer to mark up it up even more?

NO EXCUSES

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Otabek

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6#
发表于 2011-7-13 16:17 | 只看该作者
up. can someone explain further?

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