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The article discusses the evaluation of convertible bonds. Two aspects in particular are analyzed--the effect of the "bond floor" on risk premiums, and how unpredictable and involuntary termination of convertibles affects their range of possible returns. The authors describe the market model for valuing convertible securities, note its shortcomings, and then introduce a simulation method for valuation that employs Monte Carlo methods. Among their findings is that conventional methods overstate the bond floor's contribution to value.

The article examines the impact of bond coupons on the yield to maturity. Previous research has identified a "coupon effect" wherein the yield on a multiple-period security depends on the coupon, unless equality prevails among all expected, one-period rates. The author presents analysis that demonstrates under what circumstances the coupon effect will be positive or negative. He also shows how conditions of market equilibrium are consistent with differences in yield among multiple-period securities.

In the July 1952, issue of the "Accounting Review,"under the title "Some Notes on the Bond Yield Problem," the author discussed the application of a modified or improved Newton's correction formula to the problem of finding the accurate yield on a bond, the improved formula having been briefly set forth in an earlier paper by Hugh E. Stelson,' who had drawn it from one of the mathematical journals. This article includes the continuation of numbers of formulas and equations herein from where they stopped in the preceding article. With serial bonds, the problem of finding the initial approximation to the yield rate is more acute than it is with a single bond. This article also discusses the matter appearing in the thirteen pages of Mr. FitzGerald's article in the "Accounting Review," for January, 1953, on accounting for variations in gross profit.