C. Sources of Value of Convertibles
1. Convertible Securities trade like a Common Stock. They derive value from the Common Stock.
- Example: Assume a Convertible has a ratio of 20 and the Stock sells for $45. If the conversion price is $50 ($1000/20), then for every point the stock goes up or down the Convertible Security will move by 20x.
- Hence, Price of Convertible Security in example is: $45 * 20 = $900