Talk:Convertible bonds

From Bogleheads
(Redirected from Talk:Convertible Bonds)
Jump to: navigation, search

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.

XYZ Company Convertible Bond
Header text Header text
Coupon 5%
Maturity 10 years
Straight bond yield to maturity 8%
Conversion price $50/share
Current stock price $42/share
Conversion ratio 20 shares per bond
I jiggered the numbers in the text to more closely match the figure.
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. [note 1]
  1. Convertible bond credit quality (as of August 22, 2013)

    Credit Ratings.gif

    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)