AN ANALYSIS OF CONVERTIBLE DEBENTURES: THEORY AND SOME EMPIRICAL EVIDENCE.

The purpose of this paper is to develop a theoretical framework for analyzing the nature of convertible securities, and then to test it. In the first section, a graphic model is used to describe the essential features of a convertible issue. In the second section, a conceptual scheme for estimating ex ante rates of return is developed. Next, interactions between the key variables under the control of the firm--the coupon interest rate and the conversion price--are discussed in detail. Finally, the terms and conditions under which convertible bonds were sold by a sample of large, listed firms during the period 1961-1963 are described. [ABSTRACT FROM AUTHOR]