Alwan, Hadi H.||Kreidle, John R.
M.S. (Master of Science)
Department of Finance
Convertible bonds are one of the least understood media In the field of Investments. The opponents claim that convertible bonds do not perform in reality what they promise in theory. The proponents tell of the advantages in convertible issues and ignore the limitations. A convertible bond has both a straight debt value and a conversion value. The market price of the bond is usually higher than either of these two values. The difference between the market price and the higher of conversion value and straight debt value is the speculative premium. Since the speculative premium is an inherent part of a convertible bond, it is necessary that the speculative premium be understood in order to have a proper understanding of the profit possibilities of convertible bonds. The purpose of the study is to examine the behavior of the speculative premium of convertible bonds. Two issues are selected and studied in graphic form. Generalizations are made based on the study of these two issues. The generalizations are tested against a stratified sample of convertible issues. In addition, the generalizations are used to explain the movement of convertible bond prices in a critical period. The speculative premium was found to move according to changes in a ratio of conversion value to straight debt value. A model showing the behavior of the speculative premium according to changes in the ratio is presented.
Guy, Donald J., "The speculative premium of convertible bonds" (1968). Graduate Research Theses & Dissertations. 6314.
vii, 69 pages
Northern Illinois University
Rights Statement 2