Learning Module 2: Fixed-Income Cash Flows and Types
Fixed Income
Fully Amortizing Loan
\[ A=\frac{r \times \text { Principal }}{1-(1+r)^{-N}} \tag{1} \]
where:
- \(A=\) Periodic payment
- \(r=\) Market interest rate per period
- Principal \(=\) Principal amount of loan or bond
- \(N=\) Number of payment periods
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## Fully Amortizing Loan
$$
A=\frac{r \times \text { Principal }}{1-(1+r)^{-N}} \tag{1}
$$
where:
- $A=$ Periodic payment
- $r=$ Market interest rate per period
- Principal $=$ Principal amount of loan or bond
- $N=$ Number of payment periods Conversion Ratio
\[ \text{Conversion Ratio} = \frac{\text{Convertible Bond Par}}{{\text{Conversion Price}}} \tag{2} \]
Where:
- The conversion ratio represents the number of common shares a bond may be converted into for a specific par value.
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### Conversion Ratio
$$
\text{Conversion Ratio} =
\frac{\text{Convertible Bond Par}}{{\text{Conversion Price}}} \tag{2}
$$
Where:
- The conversion ratio represents the number of common shares a bond may be
converted into for a specific par value. Conversion Value
\[ \text{Conversion Value} = \text{Conversion Ratio} \times \text{Current Share Price} \tag{3} \]
Where:
- The conversion value is one way to estimate the value of the conversion feature at any time is to compare the convertible bond’s price with its value if the bondholder were to convert the bonds today.
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### Conversion Value
$$
\text{Conversion Value} = \text{Conversion Ratio} \times
\text{Current Share Price} \tag{3}
$$
Where:
- The conversion value is one way to estimate the value of the conversion
feature at any time is to compare the convertible bond’s price with its
value if the bondholder were to convert the bonds today.