Convertible bonds, warrants, and other exotic bond features. As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock. Jorge bought APJ Inc.’s convertible bond at par ($1,000) with a yield of 3.25%. This bond had a conversion ratio of 25:1 at the price of $40 per share. If APJ Inc.’s shares are currently trading at $48 per share, should Jorge convert his bond into shares?
Which of the following are most likely to have higher yields?
A. Non-convertible bonds.
B. Convertible bonds.
Consider the case of an investor, Nazim:
Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when:.
A. He is in need of cash.
B. He expects to use the cash when the bond matures.
Nazim also recently bought bonds with a clause stating that interest will be paid only when the company has enough earnings to pay for it. Nazim has invested in:.