Convertible Bonds

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Conversion ratio = number of common shares for each convertible bond that can be converted

Conversion value of convertible bond = market value of stock X conversion ratio

Straight value of a convertible bond = PV of CF if an option-free equivalent bond

Minimum value of convertible bond = MAX(straight value, conversion value)

Market conversion price per share = market price of convertible bond / conversion ratio

Market conversion premium per share = market conversion price per share – market price of stock

Market conversion premium ratio = market conversion premium per share / market stock price

Favourable income difference per share = coupon interest/conversion ratio– dividends per share

Premium payback premium = market conversion premium per share / favourable income difference per share