Outline

The following has been covered in the paper

Topic: Convertible bonds

• This form of securities allows investors to reduce the risks of high volatility in the stock markets and get considerable value growth (Brennan et al., 2018).

• A convertible bond is a type of bond with a coupon and is smaller than the other types of bonds.

• This type of bond gives the holder right to convert them into shares or even transform them into depository receipts.

• This form of bonds can be circulated among different limited investors.

• They provide payment of face value during repayment time and allows the coupon’s periodic payments.

• Since it allows conversion of the bonds into shares, this is done using a conversion price rate that is defined by dividing the bond’s face value into the price of the shares converted.

• In other words, the conversion rate is the price at which the shares are taken when the bonds are being converted.

• When the price of the shares is higher than the market price of the conversion, the bond is considered to be ‘in cash’ and considered to be ‘out of money when the market price of the shares is lower than the conversion price.

• Usually, during the emission of the shares or the circulation of the bond, the issuer is responsible for establishing the coefficient of conversion of the shares.

• The main issue for the issuance of convertible bonds is its low prices of funding for the companies.

References

• Brennan, M. J., & Schwartz, E. S. (2018). Analyzing convertible bonds. Journal of Financial and Quantitative analysis, 907-929.

• Mayers, D. (2020). Why firms issue convertible bonds: the matching of financial and real investment options. Journal of financial economics, 47(1), 83-102.

• Tsiveriotis, K., & Fernandes, C. (2016). Valuing convertible bonds with credit risk. The Journal of Fixed Income, 8(2), 95.