Definition

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December 7, 2010 at 2:53 pm #46722
karenlaing
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Could you give me a quick definition of:-
Floor value
Conversion Premium

In respect of bonds – is the conversion premium the difference between the convertible value if converted, if higher than the nominal value?
Floor value?
December 7, 2010 at 4:29 pm #73258
Anonymous
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Conversion Premium
The difference between the current MARKET VALUE of the convertible bond and the current MARKET VALUE (now) of the shares into which it could be converted.

Floor Value
The lowest value that convertible bonds can fall to, given the present value of the remaining future cash flows and principal repayment.

Or alternatively, calculate the theoretical MARKET VALUE of the equivalent straight debentures, i.e the PV of the remaining future cash flows (the coupon interest payments and principal repayment on redemption) in the future.
By equivalent straight-debt is meant, no conversion rights attached but having the same Coupon Rate of interest.

When the MV of convertible debt is = to the MV of the equivalent straight debt then =>the market attaches NO VALUE to the conversion rights.

Regards, Kevin Kelly
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