Please help me with the following question, there is only one option that is correct. Please also explain why is the opt
Posted: Sun Apr 17, 2022 6:19 pm
Please help me with the following question, there is only one
option that is correct. Please also explain why is the option
correct and other options are wrong.
QUESTION 3 In corporate bonds market, risky bond issuers sometimes provide call options to its bond investors such that the bond holders can convert the underlying bond into the issuer's stocks based on the pre-specified exercise price. Such bonds are called convertible bonds. Bond investors of convertible bonds may convert their bonds into stocks at anytime before the maturity of the bond. Once converted, the principal of the convertible bond will turn into new stocks of the issuer based on the exercise price. The following is an article on a Chinese firm's convertible bond issuance: China property developer CIFI to issue $250m convertible bonds
By Reuters open April 1, 2022 Chinese property developer CIFI Holdings (Group) Co Ltd said on Friday it will issue HK$1.96 billion ($250.22 million) three-year convertible bonds for refinancing a bond maturing this month. The Shanghai-based company is one of the few Chinese developers that would be managing to raise funds from the capital market, as liquidity was nearly shut for them after defaults by China Evergrande Group 3333.HK and others rattled global markets. The conversion price of the 6.95% bond due April 2025 is HK$5.53 per share, 20% higher than Thursday's closing price. If the bonds are fully converted, the shares represent 3.87% of the enlarged capital. CIFI said in a filing it plans to use the proceeds for refinancing, including the upcoming redemption of a 6.70% dim sum bond due April 23 with an outstanding 1.5 billion yuan ($236.29 million). Dim sum bonds are bonds issued outside of mainland China but denominated in yuan. CIFI's Hong Kong-listed shares dropped more than 13% in morning trading to HK$3.98, whereas the main Hang Seng Index eased 0.8%. Which of the following statement(s) is CORRECT according to the above? i. If CIFI Holdings makes the bond non-convertible before issuance, the bond's yield is likely to go up. ii. If CIFI Holdings makes the bond non-convertible before issuance, the bond's Macaulay duration would go up. [Consider converted stocks as payment by the issuer.] iii. CIFI Holdings' convertible bond is more likely to be converted if CIFI Holdings' stock has positive alpha instead of negative alpha. O i and ii O i and ii O ii and iii O i, ii and iii
option that is correct. Please also explain why is the option
correct and other options are wrong.
- Please Help Me With The Following Question There Is Only One Option That Is Correct Please Also Explain Why Is The Opt 1 (167.23 KiB) Viewed 33 times
By Reuters open April 1, 2022 Chinese property developer CIFI Holdings (Group) Co Ltd said on Friday it will issue HK$1.96 billion ($250.22 million) three-year convertible bonds for refinancing a bond maturing this month. The Shanghai-based company is one of the few Chinese developers that would be managing to raise funds from the capital market, as liquidity was nearly shut for them after defaults by China Evergrande Group 3333.HK and others rattled global markets. The conversion price of the 6.95% bond due April 2025 is HK$5.53 per share, 20% higher than Thursday's closing price. If the bonds are fully converted, the shares represent 3.87% of the enlarged capital. CIFI said in a filing it plans to use the proceeds for refinancing, including the upcoming redemption of a 6.70% dim sum bond due April 23 with an outstanding 1.5 billion yuan ($236.29 million). Dim sum bonds are bonds issued outside of mainland China but denominated in yuan. CIFI's Hong Kong-listed shares dropped more than 13% in morning trading to HK$3.98, whereas the main Hang Seng Index eased 0.8%. Which of the following statement(s) is CORRECT according to the above? i. If CIFI Holdings makes the bond non-convertible before issuance, the bond's yield is likely to go up. ii. If CIFI Holdings makes the bond non-convertible before issuance, the bond's Macaulay duration would go up. [Consider converted stocks as payment by the issuer.] iii. CIFI Holdings' convertible bond is more likely to be converted if CIFI Holdings' stock has positive alpha instead of negative alpha. O i and ii O i and ii O ii and iii O i, ii and iii