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Question: Convertible Bonds of Countrywide Financial Corporation: How are the conversion proceeds determined in the case of the new convertible security? Is this a common practice?

14 Oct 2022,11:47 PM

 

Case Study (Convertible Bonds of Countrywide Financial Corporation)

1.What could be the reasons behind the exchange offer?
2.Why should the market care about the method of EPS computation?
3.How are the conversion proceeds determined in the case of the new convertible security? Is this a common practice?
4.Would you accept the exchange offer?
5.Will the call and put features affect the pricing of the new convertible security?
6.What will be the conversion proceeds in terms on October 20,2004?
7.What is the reason behind the sudden increase in the convertible bond trading on October 20h,2004?
8.What is the cost to the investors and the company?

Expert answer

 

The conversion proceeds are determined by multiplying the number of shares underlying the convertible security by the price per share at which the convertible security is convertible into common stock. This is a common practice when a company issues a new convertible security.

 

Yes, this is a common practice when a company issues a new convertible security. This allows the company to raise money from investors while also giving them the option to convert their investment into shares of the company's stock.

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