Chapter 22 Convertibles Exchangeables, and Warrants 22-1
22-1 Chapter 22 Convertibles, Exchangeables, and Warrants
Convertibles, Exchangable, and warrants Convertible Security Features Use of convertibles Value of convertible Securities Exchangeable Bonds Warrants 22-2
22-2 Convertibles, Exchangables, and Warrants Convertible Security Features Use of Convertibles Value of Convertible Securities Exchangeable Bonds Warrants
Derivative Security Derivative Security -A financial contract whose value derives in part from the value and characteristics of one or more underlying assets(e. g, securities, commodities),interest rates, exchange rates or indices Straight debt or equity cannot be exchanged for another asset, but options are exchangeable. An option is part of the broader category of derivative securities We examine the convertible security, exchangeable bond, and warrant in this chapter. 22-3
22-3 Derivative Security -- A financial contract whose value derives in part from the value and characteristics of one or more underlying assets (e.g., securities, commodities), interest rates, exchange rates, or indices. Derivative Security Straight debt or equity cannot be exchanged for another asset, but options are exchangeable. An option is part of the broader category of derivative securities. We examine the convertible security, exchangeable bond, and warrant in this chapter
Convertible securit Convertible Security -A bond or a preferred stock that is convertible into a specified number of shares of common stock at the option of the holder This provides the convertible holder a fixed return (interest or dividend) and the option to exchange a bond or preferred stock for common stock The option allows the company to sell convertible securities at a lower yield than it would have to pay on a straight bond or preferred stock issue 22-4
22-4 Convertible Security -- A bond or a preferred stock that is convertible into a specified number of shares of common stock at the option of the holder. Convertible Security This provides the convertible holder a fixed return (interest or dividend) and the option to exchange a bond or preferred stock for common stock. The option allows the company to sell convertible securities at a lower yield than it would have to pay on a straight bond or preferred stock issue
Convertible Security Conversion Price The price per share at which common stock will be exchanged for a convertible security. It is equal to the face value of the convertible security divided by the conversion ratio Conversion Ratio -- The number of shares of common stock into which a convertible security can be converted. It is equal to the face value of the convertible security divided by the conversion price 22
22-5 Conversion Price -- The price per share at which common stock will be exchanged for a convertible security. It is equal to the face value of the convertible security divided by the conversion ratio. Convertible Security Conversion Ratio -- The number of shares of common stock into which a convertible security can be converted. It is equal to the face value of the convertible security divided by the conversion price