Series 7
Calculating Accrued Interest - Government Securites
*Accrued interest on US government bonds is calculated using the actual days per year and the actual days per month. *US Government securities settle in 1 business day *Ex. purchased Mon Nov 18 add one for settlement date 11/19. coupon date 7/1. 11/19 - 7/1 = 4/18 (4 months x 30 day months) +18 days interest = 138 days + 3 days for July, August and October = 141 days of accrued interest
Callable Bonds - Make whole call provision
*Make whole call provision - allows the issuer to call the bonds providing that the issuer makes a lump sum payment to investors that not only includes payment for the bond but also the present value of any future interest payments investors will miss because of the call.
Callable Bonds - Step coupon Bond
*step coupon bond or step up coupon securities, typically start at a low coupon rate, but the coupon rate increases at predetermined intervals, such as every 5 years. Issuer typically has the right to call the bonds at par value at the time the coupon rates is due to increase.
Callable Bonds
A callable bond is a bond that the issuer has the right to buy back from investors at the price stated on the indenture (deed of trust). Callable bonds are riskier for investors because investors can't control how long they can hold onto the bonds. *To compensate for this risk, they are usually issued with a higher coupon rate *More risk = More reward *Most callable bonds are issued with call protection *Call protection is the amount of time that an issuer has to wait before calling its bonds. *Some callable bonds have a call premium, which is the amount over par value that an issuer has to pay if calling its bonds in the year or years immediately following the expiration of the call protection.
Premium to parity
A corporation wishes to offer $10,000,000 of 6% 20 year debentures. Each debenture is convertible into 25 shares of common stock. If the common stock is selling at $35 per share, at which of the following prices would the bond be selling at a premium to parity? 88 If we first try answer "88," the $1,000 debenture would be selling for $880. This amount divided by 25 shares equals $35.20 per share, a price higher than the current selling price of the stock. If we try answer "87.5," the $1,000 bond would be selling for $875. This amount divided by 25 shares equals $35 per share, a price at parity with the common stock. Another way to quickly answer this question would be to just pick the highest number; if any other number is selling at a premium, then so will the higher number.
Who sets the date
A corporation's Board of Directors may select the declaration date, the record date, and the payable date but not the ex-dividend date. The ex-dividend date is set by the exchange on which the stock is traded. The ex-dividend date is two business days prior to the record date.
Ex-Dividend
A dividend announced by a company's Board of Directors on September 15 is payable on Tuesday, October 23 to holders of record on or before Tuesday, October 9. The announcement is published in Standard and Poor's Dividend Record on October 1. It will trade ex-dividend on: Friday, October 5 The ex-dividend date for any stock (other than mutual funds) is two business days prior to the record date. This means that with a record date of Tuesday, October 9, the ex-dividend date would be two business days prior or Friday, October 5.
ADR
ADRs are used to trade foreign securities. They represent all of the stock characteristics of the foreign security except the right to vote and they are denominated in U.S. dollars so they can be traded on the U.S. exchange. Foreign trading in foreign securities United States trading in United States securities Foreign trading in United States securities *United States trading in foreign securities
Bond scenario
AMERICAN PUBLIC UTILITIES CALL - New Jersey - American Public Utilities Corporation set July 15 for the early redemption of $67,000,000 in 11 3/4% debentures due 2009. Holders will receive $102.36 plus accrued interest for every $100 face amount. The utility holding concern yesterday obtained the necessary approval by the Securities and Exchange Commission to borrow $60,000,000 from banks to help provide the redemption funds. It recently projected an annual net savings of between $300,000 and $600,000 from an advance retirement of the high yielding debentures. Investors who own the American Public Utilities debentures on June 14 could pursue which of the following alternatives within the following three weeks? The bondholders could sell their bonds in the open market or submit their bonds for redemption depending on the market price of the bonds. They would not, however, want to exercise option III as the bonds will not pay any interest after the call date.
Bearer and partially registered bonds
All bearer and partially registered bonds that are in default should be delivered with any unpaid coupons attached. Bonds are considered in default when scheduled interest payments that are owed to the holder by the issuer have not been paid.
Bond Maturity Date
All issued bonds have a stated maturity date (for example, 20 years, 30 years, and so on. ) The maturity date is the year bondholders get paid back for the loans they made. At maturity, bondholders receive par value.
Redemption - has been called
An investor owns a bond that has been called for redemption. Which of the following statements would be true? I. The investor may redeem his or her bond on any date after the bond has been called. II. The interest ceases to accrue on the bond after the call date. When a bond is called for redemption, interest stops after the call date and an investor could redeem his or her bond at any time.
Convertible bond
An investor owns a convertible bond ($1,000 par value). The conversion price to the common is $40 per share. If the market price of the bond appreciates 20% from par and if the common were selling at parity to the appreciated bond, it would be selling for: If the bond is selling for $1,200 and is convertible into 25 shares and the common is selling at parity, the common would be selling for $48 ($1,200 / 25 = $48).
Warrants
At issuance, the market price of the underlying stock is lower than the exercise price of the warrants. When warrants are first issued, their exercise price is usually higher than the current market price of the underlying stock. The holder of the warrant hopes and anticipates that the stock price will rise in the future to where it will be higher than the exercise price of the warrant and he or she will be able to purchase the stock for less than the future market price of the stock. Since the warrant holder is hoping for the future, the market price of the warrant is lower than the exercise price.
Bond Certificates - Bearer Bonds
Bearer Bonds - coupon bonds because they have bearer coupons attached. This type of bond is not registered in a particular person's name. Instead the holder submits coupons (representing interest payments) to the issuer once every six months to receive the stated interest amount. At maturity, the holder receives par value. Because of the inherent risk of bear bonds (like cash, they can be lost or stolen(, they are no longer issued. Many of them haven't yet matured and are still trading in the market.
PAR
Bonds are quoted as a percentage of PAR
Bonds with collateral
Bonds backed by collateral (assets that the issuer owns) are considered safer for the investor. Secured bonds, or bonds backed by collateral, involve a pledge from the issuer that a specific asset (for instance, property) will be sold to pay off the outstanding debt in the event of default. Obviously, with all else being equal, secured bonds normally have a lower yield than unsecured bonds.
Convertible Bonds
Bonds that are convertible into common stock are called convertible bonds. They are attractive because investors have an interest in the bond price as well as the price of underlying stock.
Bond Certificates - Book entry certificates
Book entry certificates, or book entry securities, are recorded in electronic records called book entries; thus, the investor doesn't receive certificates or coupons. The US government usually issues its securities in book entry form. Although a majority of the bonds trading in the market are bearer, fully registered, or partially registered, book entry certificates are becoming more popular.
Secured Bonds - Collateral Trusts
Collateral trusts are backed by financial assets (stocks and bonds) that the issuer owns. A trustee (a financial institution the issuer hires) holds the assets and sells them to pay off the bonds in the event of default.
Capital Risk
Corporate bonds have the least risk to an investor because if the corporation falls on hard times, the bondholder is senior in claims against the corporation.
Common Stock
Corporations issue common stock to raise business capital. As an equity security, common stock represents ownership of the issuing corporation. If a corporation issues 1 million shares of stock, each share represents one-millionth ownership of the issuing corporation.
Unsecured Bonds - Debentures
Debenture bonds are backed only by the issuer's good word and written agreement (the indenture) stating that the issuer will pay the investor interest when due (usually semiannually) and par value at maturity.
Current Yield
Dividends for the year divided by current market price = current yield. Therefore, $2.00 / $40.00 = 5%.
Secured Bonds - Equipment trusts
Equipment trusts is mainly issued by transportation companies and is backed by equipment they own (for instance, airplanes or trucks). If the company defaults on its bonds, it sells the assets backing the bonds to satisfy the debt.
Equity Securities
Equity securities - such as common and preferred stock - represent ownership interest in the issuing company.
Income Bonds
Even though a company has no income from operations in a given fiscal year, it is still obligated to pay the stated interest for all of the following debt securities except: Income Bonds With income bonds (or adjustment bonds), the principal must be paid at maturity but interest is paid only if the earnings of the corporation are adequate.
Securities - What the Issuer Does
For an entity to become a corporation, the founders must file a document called a corporate charter (bylaws) in the home state of their business. Included in the corporate charter are: The names of the founders The Type of business The place of business The number of shares that can be issued If a corporation wants to sell securities to the public, it has to register with state and the Securities and Exchange Commission (SEC).
Bond Certificates - Fully Registered Bonds
Fully Registered bonds are currently the most common form of bond certificates. This type of bond is registered in an investor's name and doesn't have any bearer coupons attached. An investor doesn't have to submit coupons to receive the semiannual interest payments; the investor receives the interest automatically.
Secured Bonds - Guaranteed bonds
Guaranteed bonds are backed by a firm other than the original issuer, usually a parent company. If the issuer defaults, the parent company pays off the bonds.
Seesaw Calculations for price and yields
Higher numbers make the seesaw rise, and lower numbers make it fall. *If a bond is at par, the seesaw remains level. *If the prices decrease, the yields increase *If the prices increase, the yields decrease *The center support (n) represents nominal yield (coupon rate) of the bond because it remains constant no matter what happens to the prices or other yields. Bond Price NY CY YTM YTC Bond at Par -------------------------------------------------- /_\ *NY - nominal yield *CY-current yield *YTM - yield to maturity *YTC - yield to call
Fully Registered Bonds
If bonds are fully registered, principal and interest payments are sent directly to the registered owners as recorded in the books of the transfer agent of the corporation. When a fully registered bond is traded, the transfer of ownership can only be completed if the bond is properly endorsed. A fully registered bond does not have coupons.
If a bond's basis price is 8.75% and the coupon rate is 7.25%, it follows that the bond is selling: Below Par
In order for a bond to have a yield that is higher than its coupon rate, it must be selling at a discount. When interest rates go up, Bond prices go down. As current interest rates go up, the price of existing bonds goes down and vice versa. Concerning the relationship between the market price of bonds and current interest rates, it is inverse. Inverse means, something that is the opposite or reverse of something else
Bond appreciation
In order to answer this question, you will need to perform two steps. First, determine what is 20% of $1,000 (20% of $1,000 = $200). Second, add this to $1,000 ( $1,000 + $200 = $1,200). The answer to this question is $1,200.
The Indenture
In which of the following would all the conditions and agreements relating to a corporate bond issue be contained? The Indenture As required by the Trust Indenture Act of 1939, the trust indenture or contract describes the rights and duties of the issuing corporation, the bondholder, and the trustee.
Unsecured Bonds - Income Bonds
Income bonds are the riskiest of all. The issuer promises to pay par value back at maturity and will make interest payments only if earnings are high enough. Companies in the process of reorganization usually issue these bonds at a deep discount (for example, the bonds sell for $500 and mature at par, or $1000). You should not recommend these bonds to investors who can't afford to take a lot of risk.
Bonds
Instead of giving up a portion of their company (via stock certificates), corporations can borrow money from investors by selling bonds. Local governments (municipal bonds) and the US government also issue bonds. For Series 7 purposes, most bonds are considered safer than stocks. bondholders aren't owners of a company like stockholders are; they're creditors. Bondholders lend money to an institution for a fixed period of time and receive interest for doing so. This arrangement allows the institution to borrow money on its terms (with its chosen maturity date, scheduled interest payments, interest rate, and so on.), which it can't do by borrowing from a lending institution.
Premium of a bond
Issuers often pay a 'premium' when calling a bond early. The premium is paid in addition to par.
Bond Credit Rating Symbols - Moody's
Moody's can further break down a category by adding a 1,2 or 3. *The number 1 is the highest ranking *2 represents the middle *3 is the lowest *The top 4 ratings are considered investment grade, and the letters below are considered junk bonds or high yield bonds.
Secured Bonds - Mortgage Bonds
Mortgage bonds are backed by property that the issuer owns. In the event of default or bankruptcy, the issuer must liquidate the property to pay off the outstanding bonds.
Bond Coupon Rate
Of course, investors are not lending money to issuers for nothing; investors receive interest for providing loans to the issuer. The coupon rate on the bond tells the investors how much annual interest they'll receive. The coupon rate is expressed as a percentage of par value. For example, a bond with a coupon rate of 6% would pay annual interest of $60 (6% x$1000 par value). You can assume that bonds pay interest semiannually unless otherwise stated. So in this example, the investor would receive $30 every six months. Bondholders receive INTEREST for the use of money loaned. Stock holders receive dividends.
Convertible Bond Advantages
Of the following, which two would be considered advantages that a convertible bond offers to an investor? Because a convertible bond may be converted into shares of common stock, it affords an investor liquidity and marketability. These qualities make it easier to sell.
Stock Split
On March 27, ABC Corporation declared a 5 for 4 stock split. The ex-date is May 1 and the record date is April 8. The price of the stock would be reduced by: 20% Assume that before the stock split, four shares were worth $100 (or one share was worth was $25). After the stock split, five shares would be worth $100 (or one share would be would worth $20). This means that the price of each share has gone down from $25 to $20, a reduction of $5 or 1/5 (20%) of the original $25 value.
Bond Par Value
Par value is the face value of the bond. Although par value isn't significant to common stockholders (whose issuers use it solely for bookkeeping purposes), it's important to bondholders. For Series 7 exam purposes you can assume that the par value for each bond is 1,000 unless stated otherwise in the question. Bond prices are quoted as a percentage of par value, often without the percent sign. A bond trading at 100 is trading at 100 percent of 1,000 par. Regardless of whether investors purchase a bond for $850 (85), $1000 (100) or $1050 (105), they'll receive par value at the maturity date of the bond, usually with interest payments along the way. Corporate bonds are usually quoted in increments of 1/8% (1/8% = 0.00125 or $1.25), so a corporate bond quoted at $99 3/8 (99.375) would be trading at 993.75.
Bond - Certificates - Partially Registered Bonds
Partially Registered Bonds - also called registered coupon or registered as to principal only. This is a bond in which the principal (par value) - but not interest - is registered in the investor's name. Therefore, the bearer coupon payments can go to anyone, but only the person named on the bond can claim the principal payment at maturity. This type is no longer issued, but it's still traded in the market.
Preferred Stocks is an Equity Security
Preferred stock is senior in claims to common stock and has no specific maturity date. Preferred stock usually does not carry any voting rights but common stockholders have full voting rights. Common and preferred stockholders both have equity positions.
Callable Bonds - Put Bonds
Put bonds are better for investors. Put bonds allow the investor to put the bonds back (redeem them) to the issuer at any time at the price stated on the indenture. Because the investors have the control, put bonds are (of course) rarely issued. Because these bonds provide more flexibility to investors (who have an interest in the bond and stock prices) put bonds usually have a lower coupon rate.
Bond Credit Rating Symbols
Quality S&P Moody's Highest AAA Aaa High AA Aa Upper medium A A Lower medium BBB Baa Speculative (junk) BB Ba Speculative (junk) B B Interest or principal payments missed Speculative (junk) C Caa No interest being paid In default D D
Bond Credit Rating Symbols (+) or (-) S&P
S&P breaks down each category even further by either adding a plus (+) or (-) sign after each letter category. *The plus sign represents the high end of the category *The minus sign designates the lower end of the category *If you see no + or -, the bond is in the middle of the category
Statutory (regular) voting
Statutory, or regular voting is the most common type of voting that corporations offer to their shareholders. This type of voting is straightforward. Investors receive one vote for every share that they own multiplied by the number of positions to be filled on the board of directors (or issues to be decided). However, investors have to split the votes evenly for each item on the ballot. IE, an investor owns 500 shares and there are 4 positions to be filled on the BOD, the investor has a total of 2,00 votes (500 shares x 4 candidates), which the investor must split evenly among all open positions (500 each). The investor votes yes or no for each candidate.
The Trust Indenture Act of 1939
The Trust Indenture Act of 1939. This act prohibits CORPORATE bond issues valued at over 5 million from being offered to investors without an indenture. The trust indenture is a written agreement that protects investors by disclosing the particulars of the issue (coupon rate, maturity date, and collateral backing the bond, and so on). As part of the Trust Indenture Act of 1939, all companies must hire a trustee who's responsible for protecting the rights of bondholders.
Premium Amount
The amounts by which the price of a municipal bond exceeds the par value is said to be the: Premium When interest rates go down, bond prices in the secondary market go up.
The Bond Indenture
The bond Indenture (also known as the deed of trust) is the legal agreement between the issuer and the investor. It's printed on or attached to the bond certificate. All indentures contain basic terms: *Maturity date *The par Value *The coupon rate (interest rate) and interest payment dates *Any collateral securing the bond *Any callable or convertible features The bond indenture also includes the name of the trustee. A trustee is an organization that administers a bond issue for an institution. It ensures that the bond issuer meets all the terms and conditions associated with borrowing. Essentially, the trustee tries to make sure that the issuer does the right thing.
Bond Yields - Current Yield
The current yield (CY) is the annual rate of return on a security. The CY of a bond changes when the market price changes; you can determine the Current Yield by dividing the annual interest by the market price: Annual Interest Current Yield (CY) = ----------------------- Market Price example: Purchased Bond at 105. 2 years later it is trading at 98. If the coupon rate of the bond is 6%, what is the Current Yield (CY) of the bond. CY = 60 / 980 = 6.1 % The annual interest is $60 (6% coupon rate x $1000 par value) and the current market price is $980 (98% x $1000).
Bond credit Ratings
The institutions that rate bonds are more interested in the likelihood of default (the likelihood that the interest and principal won't be paid when due.) You can assume that the higher the credit rating, the safer the bond and therefore, the lower the yield. *2 main bond credit rating companies are Moody's and Standard & Poor (S&P) *S&P ratings of BB and lower and Moody's ratings of Ba and lower are considered junk bonds or high-yield bonds, which have a high likelihood of default. *Another rating service, Fitch, uses the same rating symbols as S&P.
Bond Yields - Nominal Yield - Coupon Rate
The nominal yield (NY) is the easiest yield to understand because it's the coupon rate on the face of the bond. You can assume that the coupon rate will remain fixed for the life of the bond. If you have a 7-percent bond, the bond will pay $70 per year interest (7% x $1000 par value). When a problem states that a security is a 7-percent bond, it's giving the nominal yield.
Bond Yields - Yield to Call
The yield to call (YTC) is the amount that the investor receives if the bond is called prior to maturity. The calculations are similar to those for the Yield to maturity, but you substitute the call price for the par value.
Bond Yields - Yield to Maturity (basis)
The yield to maturity (YTM) is the yield an investor can expect if holding the bond until maturity. The YTM takes into account not only the market price but also par value, the coupon rate, and the amount of time until maturity. YTM = Annual interest + annual accretion or - annual amortization / (market price + par value) / 2 Annual Accretion = par value - market price / years until maturity annual amortization = market price - par value/ years until maturity
Callable Bonds - When called
There is a direct correlation between interest rates and when bonds are called or put. Issuers call bonds when interest rates decrease; investors put bonds when interest rates increase. An issuer would call bonds when interest rates decrease because he could then redeem the bonds with the higher coupon payments and issue bonds with lower coupon payments to save money. Conversely, investors would put their bonds back to the issuer when interest rates increase so they could invest their money at a higher interest rate. For exam purposes you can assume that if Interest rates increase, bond yields increase.
Bond Yields - Yield to Worst
To determine the Yield to Worst (YTW), you have to calculate the yield to maturity and yield to call for all the call dates (if there's more than one) and choose the lowest.
Treasury Stock
Treasury stock is stock that has been issued by a corporation and then reacquired by the corporation from the outstanding stock. Treasury stock does not vote and it does not pay dividends.. Treasury stock is stock that is not only authorized but that has also been issued by the corporation and reacquired by the issuer in the secondary market (from the public).
Risk
Unsecured bonds are riskier than secured bonds. Because secured bonds are considered safer than unsecured bonds, secured bonds normally have lower coupon rates. The more risk an investor takes the more reward he will receive. More risk = more reward More reward may be in the form of a higher coupon rate or a lower purchase price. Either one or both lead to a higher yield to the investor.
Unsecured Bonds
Unsecured bonds are the opposite of secured bonds: These bonds are not backed by any assets whatsoever, only by the good faith and credit of the issuer. If a reputable company that has been around for along time issues the bonds, the bonds aren't considered too risky. If they are by a relatively new company or one with a bad credit rating, hold on to your seat!
Call Protection on a Bond
Upon purchasing a newly issued bond, a customer finds that it has a 'call protection' for the first five years. This is to the advantage of the: Bondholder Because of fluctuating interest rates, bond purchasers are vulnerable to a bond's call provisions. A 'call protection' is an advantage to a bondholder in that the bond cannot be called for a minimum period of time.
Cumulative Voting
Voting method that improves minority shareholders' chances of naming representatives on the board of directors. Cumulative voting allows shareholders to cast all their votes for one candidate. Cumulative voting gives smaller shareholders (in terms of shares) an easier chance to gain representation on the board of directors. Cumulative voting gives more flexibility.
Warrants
Warrants are usually issued by a corporation with which of the following? A debenture offering in order to secure a lower interest rate If warrants are included in a bond offering (in this case, debentures) because the corporation is giving the bond purchaser an additional benefit, the issuer usually pays a slightly lower interest rate on the bond. This saves the corporation perhaps thousands of dollars in interest payments in the early stages of growth and development in exchange for issuing stock to warrant holders at a later time and at a lower than market price of the stock.
Basic Yield
What would be the current yield of a 7 1/2% 15 year municipal bond purchased at 98 1/4? 7.63 The formula for calculating the current yield of a bond is to divide the annual interest by the current market price. For example: 7 1/2% = $75 annual interest payments. A bond purchased at 98 1/4 was priced at $982.50; therefore, $75 divided by $982.50 equals a current yield of 7.63%. The formula for calculating the current yield of a bond is to divide the annual interest by the current market price. For example: 4 1/2% = $45 annual interest divided by the current market price of $650. This gives a current yield of 6.92%.
Bancrupt
When assets of a bankrupt corporation are liquidated, tax liabilities have prior claim before bondholders and/or stockholders. After taxes are paid, bondholders have preference over stockholders. Senior lien bondholders have preference over debentures. Stockholders, whether preferred or common, are paid last in the list of answer choices given. If there were a choice between preferred and common, of course, common stockholders would be paid last.
Poor Quality Bonds
When comparing bonds, bonds with a lower rating (poor quality) must pay a higher interest rate than bonds with a higher rating (better quality). When poor quality bonds trade in the secondary market, they do so at a lower price than higher quality bond equivalents. Lower prices equal higher yields.
Market affects of interest rate decline
When interest rates decline, what will be the effect on the securities markets? Prices Rise and Yields Decrease Existing bond prices go in the opposite direction of interest rates. If interest rates decline, prices will rise. In addition, the more you pay for something, the less your income or yield will be.
Calculating Accrued Interest - Corporate and Municipal Bonds
When investors purchase bonds in the market, they may have to pay additional cost besides the market price. The additional cost is called accrued interest. Accrued interest, which is due when bonds are purchased between coupon dates, is the portion of the interest still due to the seller. *Accrued interest on corporate and municipal bonds is calculated on a 360 day year and assumes 30 - day months. *You have to begin from the settlement date (date the issuer records the new owner's name). *Corporate and municipal bonds settle in 3 business days. *When calculating, watch for weekends. *Ex. if purchased on Friday, Oct 21, weekends do not count. So the 3 day settlement date does not begin until Monday Oct 23. 3 days from that is October 26. *Formula settlement date 10/26 (tenth month and 26th day). The previous coupon date would be 7/1 July 1). You can set up a subtraction problem: 10/26 - 7/1 = 3/25 (3 months x 30 day months) + 25 days = 115 days of accrued interest
Bond and preferred stocks commonality
Which of the following characteristics of bonds and preferred stocks are shared in common? Bondholders and preferred stockholders have a claim on assets and income before common stockholder. In addition, they are fixed income securities in that the interest on the bond and on the dividend of preferred stock is set in advance (although preferred stock can have an adjustable dividend). Option II is incorrect because bond interest payments are not declared by the Board of Directors. Option IV is incorrect because bonds are not equity; they represent debt.
Term Bonds
Which of the following types of bonds is most likely to have a sinking fund? A= Term Bonds
2 for 1 split certificate
Which of the following will an investor who owns 100 shares of common stock registered in his or her name receive when the company is doing a 2 for 1 stock split? A new certificate for an additional 100 shares. Since stock is normally purchased and certificates are issued in round lots of 100 shares each, if a corporation has a 2 for 1 split, the stockholder will receive a new certificate for an additional 100 shares.
Mortgage Bond issue
Which of the following would be least significant when analyzing the investment quality of a mortgage bond issue? The trustee bank holding title to the collateral When analyzing mortgage bonds, an investor would consider the general economy as a whole, the bond ratings, and the collateral upon which the bond is being issued. The least significant consideration would be which bank is holding title to the collateral as trustee. mortgage bond is tied to real assets of the corporation or real estate. It is the most common form of secured corporate debt and may take on first, second, or even third liens against the same real estate. However, if the real estate values are not sufficient to pay off the claims of bondholders, there is no provision for the bondholders to attach other assets.
Convertible Bonds - Parity
parity occurs when a convertible bond and its underlying stock (the stock it's convertible into) are trading equally (that is, when a bond trading for $1100 is convertible into $1100 worth of stock.) *You need to get the conversion ration (the number of shares that the bond is convertible into). *Here is the formula conversion Ration = Par value / conversion price *You can use the conversion ratio to calculate the parity price: Parity price of the bond = market price of the stock x conversion ration
