Ascertain Initial Conversion Price Of Convertible Bonds

Since it's birth in 1980's, China's stock market has been reflecting the economic situation of our very well, and has been playing an important role in development. After these years, China's stock market has improved very much in scale, governing, means of exchange etc. But to our regret, the main securities exchanging in the market is common stock only, and the amount of exchange of bonds is very poor. In order to meet the demand of economic development, our stock market must make some change.As a financial instrument, convertible bond is very special in nature. It has some advantage that other financial resources do not have. Because of the profit expectation of its conversion, interest rate is far below others, and the expenditure of interest can shield the effect of taxation. After conversion, the bond will become common stock, and it will not be necessary for the corporation to pay it back, which will improve the financial structure of the corporation who issues the convertible bond. Just because of the advantage that has illustrated above, convertible bond finance is very attractive to those who want fund.This paper start with financing theory, then introduce M-M theory, signal theory, prefacing theory, command theory, etc. in succession. Based on this introduction, this paper presents us the theory about convertible bond financing. In chapter one, this paper also presents us the theory on market efficiency of our country these days.In chapter two, this paper set forth the character and nature of convertible bond. Then it stress on the infection of original conversion price in convertible bond issuance. By employing Si Chou convertible bond and Shen Baoan convertible bond cases, this paper give a detail explain on this infection.In chapter three, this paper discuss the theoretic assume which calculate the original conversion price of convertible bond through B-S Model. In B-S Model, original conversion price has been known; moreover, it is an important parameter in calculating the value of the option that the convertible bond involves. However, in this paper, every thing proceeds in reverse. It calculates the value of option through the invest value of convertible, based on which it calculates the original conversion price of convertible bond. In chapter four, the author explains this procession with the case of An Gang convertible bond.Although original conversion price has a significant infection in convertible bond issuance,there are many other factors that has it's effects here also, such as issue time, interest rate, redeem clause, return clause, etc. All these factors will be discussed in last chapter.There has been little paper on calculating original conversion price of convertible bond so far. The subject matter of this paper is just calculating original conversion price of convertible bond by B-S Model, presenting the author's own assumes and testing this assume by practice case, which may be its special character.Zhou Weigong (Finance & Accounting Department)Directed by Jin Liyu...