Week 6 Flashcards
1
Q
Define hard and soft puts?
A
Hard puts: the issuer must pay the bondholder cash when the bondholder puts (or sells) the bond
Soft puts: the issuer can choose the payment method
2
Q
what is the straight value of a convertible bond?
A
The straight value (or investment value) of a convertible bond is the value of the bond when the conversion option is NOT exercised.
3
Q
what is the downside risk mean?
A
The downside risk of investing in convertible bonds is limited by the bond’s straight value, since no matter what happens in the stock market, the bond value can never fall below its straight value.
