Real Options A New Way To Think
Real Options A New Way To Think
Real Options A New Way To Think
OPTIONS A NEW
WAY TO THINK
REAL OPTIONS
BONDS
It
BONDS
CONVERTIBLE BONDS
CONVERTIBLE BONDS
A convertible bond issue, like that of other bonds, will state the
maturityand thecouponon the bond. A convertible bond also has
information about the conversion option, or how many shares will
be received for the bond if it is converted.
General Issues
Example
Maturity = 10 years
Coupon rate = 10%
Conversion ratio = 50
Current market price of the bond = $950
Current price of the stock = $17
Dividend per share = $1
DEBENTURES
MEANING :
Debenture is an instrument in writing for a
fixed period given by a company acknowledging
the liability for total amount received as a result
of issue of debenture and agreeing thereby to
pay the money raised after the expiry of
stipulated period at a certain rate of interest per
annum.
DIFFERENC
E
Basis of
Shares
Debentures
Owners of Company
Creditors of Company
equity shareholders
loss.
difference
1. Nature
2. Status
3. Voting Rights
4. Control
5. Right to return
profit.
ISSUE OF DEBENTURES
The issue aspect of debentures can be studied from different angles are
given below:
1.
Bank A/c
Dr.
Dr.
To Debentures A/c
To Debentures premium A/c (if issued at premium)
For consideration other than cash. When debentures are issued to the vendors in lieu
of purchase consideration, that is known as issue of debentures for consideration other than
cash. The journal entries in this case will be:
(i)
Dr. (Rs.)
Cr. (Rs.)
Cr. (Rs.)
L.F.
Dr.
To Vendor A/c
(ii)
Vendor A/c
Dr.
To Debentures A/c
In this case also debentures can be issued at par or at discount or at premium for which
due adjustment is to be made in the second entry above like the previous case.
if the company does not repay the loan and the interest and the main security is
not sufficient, the bank will be entitled to sell the debentures in the market or the
bank may keep the debentures with it.
If the company repays the loan, the bank will return the debentures issued as
collateral security to the company.
2.
When the amount collected on debentures issued is equal to the face value as
issue of debentures of Rs. 100 for Rs. 100, it is said to be issued at par.
When the amount collected is more than the face value of a debenture as
issue of debenture of Rs. 100 at Rs.105, it is said to be at premium.
Conditions of issue
Conditions of redemption
(a)
Issued at par
Repayable at par
(b)
Issued at premium
Repayable at par
(c)
Issued at discount
Repayable at par
(d)
Issued at par
Repayable at premium
(e)
Issued at discount
Repayable at premium
(f)
Issued at premium
Repayable at premium
REDEMPTION OF DEBENTURES
Redemption of debentures refers to the discharge of liability on
account of debentures. Following three problems require attention
when company wants to redeem the debentures.
DISADVANTAGE OF
DEBENTURES/BOND
S