Chapter: 14
basic earnings per share
conversion premium
conversion price
conversion ratio
conversion value
convertible security
diluted earnings per share
dilution
downside limit
Earnings per share unadjusted for dilution.
The amount, expressed as a dollar value or
as a percentage, by which the price of the
convertible security exceeds the current
market value of the common stock into
which it may be converted.
The face value of a convertible security
divided by the conversion ratio gives the
price of the underlying common stock at
which the security is convertible. An
investor would usually not convert the
security into common stock unless the
market price was greater than the
conversion price.
The number of shares of common stock an
investor receives when exchanging
convertible bonds or shares of convertible
preferred stock for shares of common
stock.
The value of the underlying common stock
represented by convertible bonds or
convertible preferred stock. This dollar
value is obtained by multiplying the
conversion ratio by the per share market
price of the common stock.
A corporate bond or a share of preferred
stock that, at the option of the holder, can
be converted into shares of common stock
of the issuing corporation. Sometimes
convertible securities can be exchanged for
other assets or securities held by the issuing
company.
EPS adjusted for all potential dilution from
the issuance of any new shares of common
stock arising from convertible bonds,
convertible preferred stock, warrants, or
any other options outstanding.
The reduction in earnings per share that
occurs when earnings remain unchanged
yet the number of shares outstanding
increases, as in the conversion of
convertible bonds or preferred stock into
common stock.
The lowest value a convertible bond should
exercise price (warrant)
floor value
forced conversion
intrinsic value
option price
parity price
pure bond value
speculative premium
warrant
fall to based on its pure bond value (and an
assumption that interest rates stay
constant).
The price at which the stock can be bought
using the warrant.
A value that an income-producing security
will not fall below because of the
fundamental value attributable to its
assured income stream.
When the company calls the convertible
security knowing that the owners will take
the stock and thus convert the debt to
equity.
Value of a warrant or option equal to
market price minus the strike (exercise)
price.
The specified price at which the holder of a
warrant may buy the shares to which the
warrant entitles purchase.
The price to compensate for inflation
exposure.
The fundamental value of a bond that
represents a floor price below which the
bond's value should not fall. The pure bond
value is computed as the present value of
all future interest payments added to the
present value of the bond principal.
The difference between an option or
warrant's price and its intrinsic value. That
an investor would pay something in excess
of the intrinsic value indicates a speculative
desire to hold the security in anticipation of
future increases in the price of the
underlying stock.
A right or option to buy a stated number of
shares of stock at a specified price over a
given period. It is usually of longer
duration than a call option.