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Dear John,
For the $30 million loan in the form of 8% bond, the loan amount is being repaid together with the interest and it is fully repaid at the end of year 4.
On the other hand, as for the $20 million loan in the form of 6% convertible bond, only the interest is paid, at the end of 4 years, the loan amount is still $20 million.
My question is when will the $20 million loan amount be repaid? It does not make sense if the company only pays for the interest. I know this has nothing to do with the answers but I just want to know it for my understanding.
The question says that this loan is convertible from the beginning of year 5 onwards.
So at any time from year 5, the holders of the bonds have the right to either convert to shares or to take cash – whichever they prefer. When they exercise this right is up to them and until they do convert or take cash they will continue to receive interest.
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