Feel free to develope this page Blbarnitz 23:51, 11 January 2009 (UTC)
Is the Conversion Value shown in Figure 1 the same as the Conversion price? The terminology is unclear. If so, can the conversion price (value?) example be modified to match the figure? --LadyGeek 12:56, 24 August 2013 (CDT)
- Here are the inputs used in the graphic depiction (the image is available from google images}:
- Here is the page link for the image: Calamos Investments - Convertible Bond Example
"To help clarify some of these concepts, we present a hypothetical example in the table below and graphically in Figure 2-6. Assume that a new issue convertible has come to market. It has a 5 percent coupon and 10 years to maturity. The issuing company has other 10 year debt that carries an 8 percent yield, and the company's stock is currently trading at $42.
|Header text||Header text|
|Straight bond yield to maturity||8%|
|Current stock price||$42/share|
|Conversion ratio||20 shares per bond|
- Also note that this model is a simplification, that professionals use the full gamut of greeky math (delta, gamma, rho, theta, and vega) to value convertible bonds and the academics utilize differential equation calculus ,--Blbarnitz 16:19, 24 August 2013 (CDT)
I utilized Calamos Investments - Convertible Bond Example to clarify that conversion value is described in Figure 1. "To calculate the current conversion value, we know that the stock price is currently $42. Multiplying $42 by 20 shares, we get a current conversion value of $840."
Under credit risk, I think the tables indicate that many convertible bonds (versus "most") are not investment grade bonds. I considered both indexes. This is a qualitative judgment, but I wanted to explain.
- Credit risk: ...Most convertible bonds are not investment grade bonds. [footnotes 1]
- Convertible bond credit quality (as of August 22, 2013)
Barclays U.S. Convertible Bond
> $500MM Index
Credit quality Barclays Intermediate
US Corporate Index
Credit quality A 11.12% Aaa 0.59% Baa 28.40% Aa 10.34% Below Baa 31.88% A 48.74% Not rated 28.60% Baa 40.33%
Data sources : SPDR® Barclays Convertible Securities ETF, holdings tab; SPDR® Barclays Intermediate Term Corporate Bond ETF, holdings tab.
--LadyGeek 16:56, 26 August 2013 (CDT)