Convertible Bonds Flashcards
1
Q
Convertible bond =
A
Bond + call option
- converts bondholder to a equity holder
- held in the D+E section
2
Q
Conversion value
A
Conversion ratio * S0
3
Q
Conversion parity price aka market price
A
Convertible bond worth (or price)/ conversion ratio
Conversion parity price < share Spot price
Because why convert my bond for higher when I could just buy the shares at the cheaper spot price
4
Q
Call price
A
- directly proportional to yields or interest rates
- directly proportional to volatility
5
Q
Payback
A
(Bond price - Conversion value)/(Coupon -Dividends)
