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Imagine that you are an analyst who is in charge of evaluating a convertible bond issued...

Imagine that you are an analyst who is in charge of evaluating a convertible bond issued by Alpha Airlines since last year. Last year, the price stock was increasing dramatically and at some point reached an all-time high but in recent months, it plummeted due to the coronavirus shutting down traveling.

What would you do differently in your analysis of the convertible bond position this year compared to last year? Explain why?

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Answer #1

In the last year, i could have converted by convertible bond into stock to take advantage of the rising stock prices. As the stock prices have been rising and if i hold on to the bond, i would have only received the fixed payments of bond principal and interest, after conversion i could enjoy the rise in the stock prices . This year due to the falling stock prices, i would not have converted my bond as i would have enjoyed the fixed payments received, as it would have been disadvantageous converting the stock into bond.

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