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A company releases outstanding earnings numbers and raises guidance for the next fiscal year, and the...

A company releases outstanding earnings numbers and raises guidance for the next fiscal year, and the stock price as a result jumps up 20%, then it is optimal to convert a convertible bond on this company into stocks right away. Assume that the stock pays no dividend.

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Expert Solution

If the company is showing good in numbers/balance sheets and their future plans are clear in respect to the performance of the organisation then it is favourable to convert the bonds into stock as they will definitely provide you more than the bond yield.

However you need be more vigilant in terms of the number and need to compare there data concisely and go through some technical analysis with this fundamental analysis which would easily help you compare there past data and forecast the future performance. Along with this you can compare their return on equity with the bond yield which you will get.

So in above scenario mentioned the stock price has increased after the declaration of financial statements and the future plans of the company which shows that their is bullish view for this stock in market and will help this stock to gain more so you can proceed to convert your bonds into stock in this scenario.

jeff jeffy answered 6 months ago
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