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Convertibles - An Introduction

Convertible bonds are interest-bearing securities that give the holder the option of surrendering (converting) the bond for a pre-determined amount of stock (usually the issuer's). Convertibles permit issuers to raise finance at a lower financing cost, yet offer investors a higher income than dividends on the underlying stock, as well as offering a conversion privilege.

 

This course looks at the most common types of convertibles and the motivations for issuing and investing in them. The mathematics of convertibles and their special provisions are also presented.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Define a convertible bond

    Explain the mathematical terms associated with convertibles

    Outline the special provisions that can be included in the terms of a convertible

    List and describe the different convertible variants

  • COURSE OUTLINE

    Topic 1: What is a Convertible?

    What is Convertible?

    o Convertible Bonds

    o Convertible Preferred Stock

    Why Issue Convertibles

    o Lower Financing Costs

    o Premium

    o Wider Investor Base

    Why Invest in Convertibles

    o Safety of a Bond

    o Hedge

    o Yield

    Topic 2: Mathematics of Convertibles

    Mathematics of Convertibles

    o Conversion Ratio

    o Conversion Price (Par Conversion Price)

    o Market Conversion Price

    o Conversion Value (Parity value)

    Conversion Premium Ratio

    o Breakeven Ratio

    Example of a Convertible

    Topic 3: Provisions of Convertible Bonds

    Provisions of Convertible Bonds

    Issuer Call

    Call Protection

    o Hard call

    o Soft Call

    Investor Put Dilution and Stock Splits

    Accrued Interest

    Topic 4: Convertible Bond Variations

    Convertible Bond Variations

    o Contingent Convertible (CoCo)

    o Discount Convertible

    o Zero Coupon Convertible

    o Exchangeable Convertible

    o Mandatory Convertible

    o Convertibles with Reset Features

    o Busted Convertibles

    o Synthetic Convertibles

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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