Purchase Solution

Finance: Market Meldown

Not what you're looking for?

Ask Custom Question

See the attachment for the problem.

Purchase this Solution

Solution Summary

The solution determines the options embedded in the convertibles in the given problem

Solution Preview

The response has been attached. It contains the solution.

Step 1: Understanding the problem
The terms would be conversion rights for each bond into 50 of the underlying shares (conversion ratio bond: share:: 1:50) after 5 years (time period), otherwise repayment at par (hence, at the end of 5 years the least you can get is $100).

Step 2: Drawing the payout graph at the end of 5 years.
Based on conversion of ratio bond: share:: 1:50, suppose the price of the share is $x, 5 years from now, then the amount of money you get is $50x.
However, as stated in the last line of Step 1, least you can get is $100. Hence, the conversion will only take place if, 50x > 100. Thus, your downside is protected, but you have unlimited upside (as you make more money as the stock keeps on increasing in price).
The diagram would look like this:

As you can see from the above graph this is a typical payoff of a call option with a strike price of $100.

The input till now is as follows ...

Purchase this Solution

Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.


This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.