CH 5-8: Week 2

Question 1

A convertable bond is

Answer 1

a corporate bond that grants the buyer the right to exchange the bond for a fixed number of shares of the stock

Question 2

What is conversion ratio?

Answer 2

The number of shares of common stock that the bondholder will receive from exercising the call option of a convertible bond or an exchangeable bond.

Question 3

Physical settle

Answer 3

Upon conversion, the bondholder receives from the issuer the underlying shares.

Question 4

Cash settle

Answer 4

There are issues where the issuer may have the choice of paying the bondholder the cash value of the underlying shares.