ILLUSTRATION 1

•Convertible bond issued at par on 1 Jan 20x0

•Nominal value of $100,000.000
•Repayable at 31 December 20x3
•Annual coupon at 4% per annum
•Interest payments were paid at the end of each half-yearly period (2% per half-year)
•Convertible at $1 of bond to 0.75 ordinary shares at any time up to the date of maturity.
•A similar bond issued by this enterprise, which did not have a convertible feature, paid interest of 6%
er half-year)
ate of maturity.
e feature, paid interest of 6% per annum (3% per half year).
ILLUSTRATION 2

Continuing Illustration 1, assume that on 30 June 20x1, 20% of the convertible debt holders exercised their rig
prices performed badly and by expiry date, no other conversions were made.
holders exercised their right to convert the bonds to equity. Subsequent to this date, the share
ILLUSTRATION 3
•Same facts as in illustration 1. On 31 Dec 20x1, market interest rate for similar bond (based on illustration 1)
the convertible bond by:
–Repurchasing it for $108 million
–Redemption price is allocated between debt and equity components
sed on illustration 1) with no conversion feature was 4% per annum. Company decided to redeem
ILLUSTRATION 4
•Continued from illustration 1:
–Company changed conversion ratio to 0.8 ordinary shares (from 0.75) if bond holders converted t
–Share price on 2 Jan 20x2 was $2 per share
–New shares to be issued on full conversion = 80 million vs. 75 million
–Cost of inducing the conversion = $10,000,000 ($2 x 5,000,000 [increase in new shares])
d holders converted the bond before 31 Jan 20x2

ew shares])
ILLUSTRATION 5
•Convertible bond issued at par on 1 Jan 20x0
•Nominal value of $100,000.000
•Repayable at 31 December 20x3
•Annual coupon at 4% per annum
•Interest payments were paid at the end of each half-yearly period (2% per half-year)
•Convertible at $1 of bond to 0.75 ordinary shares at any time up to the date of maturity.
•A similar bond issued by this enterprise, which did not have a convertible feature, paid interest of 6% p
• Transaction costs incurred in the issue of the convertible bond by Alpha Corporartion amounted
paid interest of 6% per annum (3% per half year).
porartion amounted to $500,000.