Investors who are prepared to do the appropriate research can invest in individual convertible securities through their broker. When convertible bonds mature, ... which is equal to the face value of the bond divided by the conversion ratio. There’s one catch, however: In the rare event the issuer goes into bankruptcy, investors in convertible bonds have a lower priority to claim to the company’s assets than investors in straight, non-convertible debt. What is the conversion ratio? She looks forward to doing her family's taxes each year, and likes to write about home finances and money subjects for the rest of us.What Is the Main Difference Between a Bond and a Share of Stock?Why Does the Volatility of Interest Rates Affect Risk? The conversion ratio is obtained by dividing the par value Par Value Par Value is the nominal or face value of a bond, or stock, or coupon as indicated on a bond or stock certificate. The investor converts the bond and receives 25 shares of stock at $60 per share, for a total value of $1,500. What makes them different is the conversion option, and each bond has its own conversion ratio.
Like regular corporate bonds, convertibles pay income to investors.
A convertible bond is one that gives the owner the option to convert it into shares of common stock. It is a static value determined at the time of issuance and, unlike market value, it doesn’t fluctuate on a regular basis. Convertible bonds are bonds that are issued by corporations and that can be converted to shares of the issuing company’s stock at the bondholder’s discretion. And you would receive your $1,000 back upon maturity of the bond.When convertible bonds are issued, the price of the stock is usually less than the conversion price. This is the number of shares of common stock the bond can be converted into. A 10-to-one ratio, for example, means that one bond can be converted into 10 shares of stock.So if you have a five-year convertible bond with a $1,000 face value, and a coupon, or yield of 5 percent, the conversion ratio, meaning the number of shares you receive when you exercise your conversion option, is 25.The conversion price is the number of converted shares which equals the par value or face value of the bond.So for our five-year convertible bond with the $1,000 face value and the 5-percent yield or par, that means the conversion price is $40 per share, or $1,000 divided by 25. If you hold onto the convertible bond for three years and receive $50 in income each year and the stock is trading at $60 per share, your yield will increase also. You can choose to convert a convertible bond into a stock share, or you may have mandatory convertible bonds which convert to common stock shares upon maturity of the bond. Most convertible bonds are issued in units of $1,000. The bond's prospectus specifies a conversion ratio, which is the number of shares that the investor will receive if he chooses to convert. But unlike stock, convertible bonds can only fall so far—provide the issuing company remains solvent—since they have a specific maturity date when investors will receive their principal. The effective conversion price is, therefore, $40 per … His articles have been published in The National Law Review, Mix Magazine, and other publications. For example, in 1987 the Atari Corporation issued $5 million of 15 year bonds that could be converted into common stock in a ratio 30.66 shares per bond. Conversion ratio Relationship that determines how many shares of common stock will be received in exchange for each convertible bond or preferred stock when a conversion takes place. A number of major fund companies offer
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