Conversion premium
Discussion week 6
To calculate conversion in dollars, we divide the par value of the bond by the conversion rate. From the information provided, the Par value of the bond is $ 1000, while the rate of conversion is 16.7158. Hence the conversion price in dollars is computed as Bonds conversion price in dollars= $ 1000/ 16.7158=$ 59.824
Conversion premium is computed as straight bond value divided by conversion value minus 1. Conversion value is computed by multiplying the company’s stock price by conversion rate. The company’s stock price is $ 45.15. Conversion premium in percentage is computed as: Conversion premium (%)= *100= 32.50% Don't use plagiarised sources.Get your custom essay just from $11/page
The conversion premium has a got such high figure because investors in this company believe that the finance will be more profitable in the coming days. In a profit-generating company, the shares of equity increases as the profit earning of the company increases. Nuvasive issued bonds which are convertible because such bonds typically have low costs due to their high conversion premium. Straight bonds, on the other hand, have high amounts of costs. According to Roughan (2016), Nuvasive agreed to use “hybrid” bonds because it has the capability of been converted into cash or shares. Similarly, they would be able to take benefits of rates of interest and low rates for the issued bonds.
REFERENCE
Roughan, S.(2016). NuVasive, Inc. Announces Pricing Of Offering Of $550 Million Of 2.25% Convertible Senior Notes Due 2021. Retrieved from https://www.nuvasive.com/news/nuvasive-inc-announces-pricing-of-offering-of-550-million-of-2-25-convertible-senior-notes-due-2021/
Discussion week 6
To calculate conversion in dollars, we divide the par value of the bond by the conversion rate. From the information provided, the Par value of the bond is $ 1000, while the rate of conversion is 16.7158. Hence the conversion price in dollars is computed as Bonds conversion price in dollars= $ 1000/ 16.7158=$ 59.824
Conversion premium is computed as straight bond value divided by conversion value minus 1. Conversion value is computed by multiplying the company’s stock price by conversion rate. The company’s stock price is $ 45.15. Conversion premium in percentage is computed as: Conversion premium (%)= *100= 32.50%
The conversion premium has a got such high figure because investors in this company believe that the finance will be more profitable in the coming days. In a profit-generating company, the shares of equity increases as the profit earning of the company increases. Nuvasive issued bonds which are convertible because such bonds typically have low costs due to their high conversion premium. Straight bonds, on the other hand, have high amounts of costs. According to Roughan (2016), Nuvasive agreed to use “hybrid” bonds because it has the capability of been converted into cash or shares. Similarly, they would be able to take benefits of rates of interest and low rates for the issued bonds.
REFERENCE
Roughan, S.(2016). NuVasive, Inc. Announces Pricing Of Offering Of $550 Million Of 2.25% Convertible Senior Notes Due 2021. Retrieved from https://www.nuvasive.com/news/nuvasive-inc-announces-pricing-of-offering-of-550-million-of-2-25-convertible-senior-notes-due-2021/