Question-56: What is the conversion ratio, in case of convertible bond?

Answer: The conversion ratio is used to determine the number of shares of equity stock to which the investor has a claim.

Question-57: What are other basic features of the convertible bonds?

Answer: Basic features of the convertible bonds are below

• The conversion can be allowed for all or only some portion of the bond’s life.
• The conversion ratio can decline/reduce over time.
• Conversion ratio always adjusted proportionately for stock splits and stock dividends.
• Convertible bonds are usually callable by the issuer.
• There are some convertible issues that can have call protection. Which can be either of this
  • The issuer is not allowed to redeem the issue before a specified date
  • Issuer is not permitted to call the issue until the stock price has increased by a predetermined percentage price above the conversion price at issuance.

Question-58: What are the warrants?

Answer: A warrant is an option which corporation issues that permits the investor to buy from the corporation a certain number of shares of common/equity stock at a specified price.

Question-59: What are the features of the warrants?

Answer: Few of the basic characteristics of the warrants are below.

• Its an option.
• Warrant has long life e.g. 2 years to perpetual.
• Exercise price is usually higher than the market price of common stock.

Question-60: What does it means of having non/detachable warrants?

Answer: Detachable warrants are usually traded on the Stock Exchange. Other warrants can be exercised only by the bondholder, and these are called nondetachable warrants.