标题: Convertible bond- premium over straight value [打印本页] 作者: mdfb79 时间: 2011-7-13 16:16 标题: Convertible bond- premium over straight value
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!作者: ppls 时间: 2011-7-13 16:16
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?作者: troymo 时间: 2011-7-13 16:16
i dont know. i am stupid. haha
from the formula, i guess b. dont laugh at me!作者: CPATrader 时间: 2011-7-13 16:16
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.作者: maryli 时间: 2011-7-13 16:17
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?
