Bonds convertible to raw materials in the context of bonds convertible to shares and ordinary bonds

AGH University, Department of Economics and Management in Industry, Al. Mickiewicza 30, 30-059 Kraków, Poland

^a Corresponding author: rranosz@agh.edu.pl

Abstract

This article presents an analysis of bonds convertible to raw materials in the context of ordinary bonds and bonds convertible to shares. The author of the publication decided to explore what kind of benefits an enterprise issuing bonds and a bondholder would receive as exemplified by a hypothetical investment, using various (aforementioned) sources of foreign capital. The article is composed of four parts. The introduction hereto outlines some general assumptions and the purpose of the study. The second part of the article includes the assumptions for the aforementioned comparative analysis. It was suggested that since such variables as the price of raw materials, shares and operating costs of a company are difficult to determine, they should be distributed so that on the basis thereof the final NPV may be established by applying the Monte Carlo method. The third part of the study focuses on the examination (comparison) of the bonds convertible to raw materials in the context of ordinary bonds and bonds convertible to shares. The result of such an analysis is the NPV histogram for particular sources of financing, a probability distribution defining the probability of occurring individual NPV values. The last part constitutes a summary of the entire study.