What is a convertible bond and what does a convertible bond mean?

Convertible corporate bonds, referred to as convertible bonds, are special corporate bonds that can be converted into ordinary bonds at a specific time and under specific conditions.

At the time of the issuance of convertible bonds, it is clarified how ** is converted into common shares, and this provision is the conversion of convertible bonds (also known as conversion of shares**), that is, the actual ** paid by investors to acquire each share of common shares at the time of conversion.

Conversion** is usually 20 30 higher than the share price at the time of issuance. The conversion ratio is the number of shares of common stock that a creditor can receive through the conversion. There is the following relationship between the par value, conversion ratio** and conversion ratio of convertible bonds:

Conversion of shares** = par value of convertible bonds Conversion ratio.

For example, Company A issued 100 million yuan convertible bonds in 2000 with a face value of 1,000 yuan and an annual interest rate due in 2010. The conversion can be made at any time before that, and the conversion ratio is. Its share transfer** can be calculated:

Transfer of shares**=1000 yuan).

In other words, in order to acquire a share of Company A, it is necessary to give up the face value of the bond in the amount of RMB.

A convertible bond is a bond in which the bondholder can convert the bond into an ordinary bond of the company as agreed at the time of issuance.

The popular explanation is that convertible bonds are actually a kind of bonds that can be converted into **, and the purpose of issuing convertible bonds is to raise funds.

A company needs a lot of money to grow, and almost every company will raise money externally. There are only two forms of financing, one is debt financing (referred to as debt), such as borrowing (loaning) from banks, which requires interest to be paid and the principal and interest to be repaid. The second is equity financing (referred to as shares), which is to exchange the company's equity for money, which is an exchange.

When you get equity, become a shareholder of the company, and become a family, the company naturally does not need to repay your money, nor does it need to pay interest, and your return is the appreciation of the shares.

Convertible bonds are the second type, you can choose to hold convertible bonds on a certain day in the future, with a pre-agreed **, the bonds held by the par amount (each is 100 yuan), exchanged for the company's **.

Originally, you lent money to the company and were a creditor, but after being converted into **, you became a shareholder of the company and enjoyed the rights and obligations of shareholders.

Convertible bonds are a hybrid type of bond, which is a combination of ordinary corporate bonds and options. Holders of convertible bonds are free to choose whether to convert into common shares of the company within a certain period of time according to a predetermined ** or conversion ratio.

Hello, convertible bonds, that is, "convertible corporate bonds", means that within a specified period, investors can convert their holdings of convertible bonds into the company's **. When it is a bond, the investor's principal can be guaranteed by 100%, and the company is required to repay the principal and interest when the bond matures; And when it becomes **, investors enjoy the high returns it brings. Therefore, convertible bonds are also considered to be "guaranteed at the bottom, but not capped".

What does convertible debenture mean?

According to the provisions of the bond contract, it can be converted into bonds of the issuing company ** according to the specified conversion ratio or conversion ** after a certain period of time. Convertible bonds are more attractive to both investors and issuers, and it has the advantages of both bonds and **. The selling price of a convertible bond consists of two parts:

The first is the present value of the principal and interest of the bond converted at the market interest rate; The other anterior plexus is the value of the right to convert. The conversion right is valuable because when the price is **, the creditor can convert it to ** according to the original conversion rate, so as to obtain the benefit of **appreciation. There are two accounting methods for the issuance of convertible bonds:

One believes that the conversion right has value and treats this value as capital reserve; The other method is not to recognize the value of the conversion right, but to treat the entire issuance proceeds as the proceeds from the issuance of bonds.

Bonds, conversions, **, companies, spreads, pricing convertible bonds, also translated as convertible bonds, are a type of bonds, which can be converted into the ** of the bond issuing company, and its conversion ratio will generally be determined at the time of issuance. Convertible bonds usually have a lower coupon rate because the right to convert into ** is a compensation for the bondholder. In addition, when a convertible bond is converted into ordinary shares, the value of the convertible bond is generally much greater than the value of the original bond.

Essentially, a convertible bond is an option attached to the issuance of a corporate bond and allows the purchaser to convert the bond they purchased into a designated company** within a specified time frame. Other types of convertibles** include: exchangeable bonds (which can be converted into shares of a company other than the issuing company), convertible preferred shares (preferred shares that can be converted into common shares), and compulsory conversion (a short-term**, usually with a high yield, that is converted into a corporation at maturity based on the date of the company**).

From the issuer's point of view, the main advantage of financing with convertible bonds is that interest expense can be reduced, but if the bonds are converted, the equity of the company's shareholders will be diluted. From a pricing perspective, convertible bonds are made up of two parts of assets: bonds and warrants. The pricing of convertible bonds requires the assumption of 1) the degree of volatility of ** corresponding to which the warrants are pricedand 2) the fixed income portion of the bond spread (ceditspead), which is determined by the company's creditworthiness and the bond's priority rating (the order in which the company will repay all of its debts in the event that it is unable to pay all of its debts).

If the market value of a convertible bond is known, the implied degree of share price volatility can be extrapolated from the hypothetical bond spread, and vice versa. This degree of volatility in the classification of credit is the standard pricing method for convertible bonds. Interestingly, with the exception of the exchangeable bonds mentioned above, we cannot completely separate the degree of share price volatility from credit.

High volatility (in favor of investors) is often accompanied by deteriorating credit (unfavorable). Good convertible bond investors are those who can strike a balance between the two sides. A simple method of pricing a convertible bond is to add the present value of future bond interest and principal to the present value of the warrant.

However, this approach ignores the fact that interest rates and bond spreads are random, that convertible bonds often come with callable or sell-back clauses, and that conversion ratios reset periodically. The most prevalent pricing method for convertible bonds is a finite difference model, such as a binary or trinomine tree.