1001 words 5 pagesWhy would an investor be interested in convertible securities? (What do they offer to the investor?)
A convertible bond is a bond that can be converted into a pre-determined number of shares of stock. This would happen during the life of the bond. The number of shares it can be converted to is determined by the issuer of the bond, the corporation. Convertible bonds are an attractive investment. They offer the for potential market appreciation like an equity. They also offer the conservative nature and safety of a bond. A convertible bond pays you interest and gives you the option to convert it to shares of stock.
A convertible bond has a face value of $1,000, and the conversion price is $50 per share. The stock is selling at $42 per …show more content…
The market can be used to hedge in a variety of circumstances. Any situation in which profits or losses might be affected by changes in interest rates or exchange rates can be hedged. You take a position in the futures market that gives you an opposite effect from your exposed position. For example, a corporate treasurer waiting to place a debt issue can hedge against higher rates by going short on various securities which vary with interest rates (such as Treasury bonds, Treasury bills or GNMA certificates). If interest rates go up, the price to buy back the interest rate future will go down and a profit will be made on the short position. This will partially offset the higher interest costs on the new debt issue.
Sterling Jones purchases a 5,000-troy ounce contract on silver at $13.00 an ounce. At the same time he purchases a 112,000 pound sugar contract at 0.191 cents a pound. If the price of silver goes down to $12.94 at the same time the price of sugar goes up to 0.196 cents, will Sterling have an overall net gain or loss?
Why are stock index futures and options sometimes referred to as derivative products? Why do some investors believe derivative products make the markets more volatile?
Stock index futures and option are sometimes refer to as derivatives products because they derive their exercise from actual market indexes, but have no intrinsic characteristic of their own. The reason some believe they lead to greater market