Discuss the Factors That Management Must Consider Before Calling a Convertible

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The Answer is When a firm calls a bond it generally does so by offering a call premium.So,first of all,firms would not want to do this if the call price is going to exceed the convertible's market value.The minimum market value of a convertible bond is the maximum of the bond's straight bond price and its conversion value.The straight bond price is affected by market interest rates and the conversion value is affected by stock market prices,both of which fluctuate throughout every trading day.Since bondholders generally have 30 days to decide whether to convert a bond or surrender it at the call price,managers must forecast market movements for at least that long prior to making a call offer.

Discuss the Factors That Management Must Consider Before Calling a Convertible

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Discuss the Factors That Management Must Consider Before Calling a Convertible

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