Unit 5: Corp. Debt Securities

Question 1

Convertible Bonds

Answer 1

allow investor to convert the bond into a fixed number of shares of common stock

Question 2

Conversion Price =

Answer 2

PAR / Conversion Ratio

Question 3

Conversion Ratio =

Answer 3

PAR / Conversation Price

Question 4

Bond MV =

Answer 4

Stock MV x Conversion Ratio

Question 5

Parity

Answer 5

when MV of stock = MV of bond

Question 6

What can an issuer do if it wants to refinance its debt at current low rates, but the outstanding bonds are subject to call protection?

Answer 6

Pre-Fund:
issue new bonds at lower rates
hold proceeds of older bonds to redeem them when call protection ends