Covertible Bond Formulas

Any1 memorizing all 8 formulas for the convertible bond section?

Its extremely annoying

Why not understand them, instead of merely memorizing them?

It’s not rocket science. (I know: I used to be a rocket scientist.)

Trump card

Bridge player?

No… mostly pinochle and euchre

OK , lets put it this way. in a conventional investment in callable bond, bondholder has the disadvantage that if price goes up it is capped at the call of the issuer, negative convexity. A convertible/exchangeable bond adds another feature to conventional bond. It retains the issuer’s right to call but at the same time gives an option to bondholder that he may convert the bond to shares at the prescribed conversion ratio. Stated differently , an investor could make investment in a stock or he could buy a convertible bond that can effectively reduce his gains but also minimize his losses had he invested directly in stock.Bonds’ downside risk is confined to straight value of bond, so if there is a slide in stock price you get saved. But since the option of convertibility came at a price/premium , your gains on stock appreciation are reduced by the premium amount. So much for the story. Now if you write down all the eight formulae and solve questions , things would start making sense.