Can you elaborate for me on convertible payback periods? - ProProfs Discuss
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Can you elaborate for me on convertible payback periods?

Asked by Laidley, Last updated: Nov 05, 2020

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John Smith

John Smith

John Smith
John Smith

Answered Sep 08, 2016

If you buy a convertible and pay a premium of 3%, as an example, how long would ittake to recoup this if the convertible yield pays 5% and the common share pays only2%? if you paid an extra 3% by purchasing the convertible debenture (rather than justbuying the stock itself), but the debenture pays 3% more than you would have earnedbuy just buying the stock, how long would it take to recoup the premium? if thepremium is 3% and you are going to earn an additional 3%, the payback period wouldbe only 1 year.what if the convertible debenture had a yield of 3% (which is only 1% more than youwould get from buying and owning the common stock)? if the premium you paid topurchase the convertible debenture is 3% and you are only earning an extra 1% buybuying the convertible debenture, its going to take 3 years to for that additional incometo recoup your premium.
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