Question
Your friend comes to talk to you about a convertible bond that he owns. Comment on the logic in her thought process. He says: My
Your friend comes to talk to you about a convertible bond that he owns. Comment on the logic in her thought process. He says:
My convertible bond is currently priced at $900 and can be exchanged for 20 shares of common stock. Currently, that stock is trading at $32 per share. I have been told not to convert my convertible bond into this equity, because the conversion value of equity is only $550. But, I think that I should convert the bond into the equity, because with the equity, I have the potential of a future increase in value that is limitless should the price of the equity skyrocket. Therefore, Id be willing to trade the $900 bond for the $550 worth of equity because Id be paying the extra $350 for the growth potential.
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