**D I F F E R E N C E B E T W E E N**

**
**C O N V E N T I O N A L B O N D S

AND

C O N V E R T I B L E B O N D S

There is usually a huge difference in the "returns", between buying
*Conventional bonds* and *Convertible bonds*.

__
____Conventional bonds__ are standard bonds bearing a coupon, paying
interest twice a year and have a maturity date at which they will redeem their
bonds at "par" ($ 1,000). The price of Conventional bonds will change
primarily with the change in interest rate.

__
____Convertible bonds__ have the same characteristics as Conventional
bonds. They have a coupon, pay interest twice a year and at maturity they will
redeem their bonds at "par" ($ 1,000).

__
____The bonus with Convertible bonds__ is that they are convertible into a
known number of common shares of the company. The number of shares into which it
is convertible multiplied by the price of the common share is called the "
conversion value ".

__
__The convertible bond will always trade above its conversion value.

__
____The upside in the price of the bond is unlimited__, it is directly
attached to the price of the common share through the mathematical formula:
(number of shares X price of shares). Ie: If the bond is convertible into a 100
shares and the price of the share is $10, the *conversion value* is (100
shares X $10) = $1000. If the price of the shares rises to $15, the conversion
value of the bond is (100 shares X $15) = $1,500.

__
____The downside in the price of the bond is limited__
through its investment value. The investment value of a Convertible bond, is the
price at which it would trade if it were not convertible.

__
____The Convertible bond price will rise with its conversion value but its price
will normally fall no lower than its investment value__.

__
____EXAMPLE__:

Let us __compare__ the purchase of two bonds from the same company.

One __Conventional bond__ at $1000, with a coupon of 10% and

One __Convertible bond__ at $1,000, with a coupon of 10% and a
conversion ratio of 100 common shares. The price of the common share is trading
at $10.

**
CONVENTIONAL CONVERTIBLE**

BOND
BOND

**
**
---------------------------
------------------------

BUY ONE
BOND:
$1000
$1000

INTEREST:
10
%
10 %

CONVERSION
RATIO:
0
100 SHARES

PRICE OF COMMON
SHARE:
$10

.............................................................................................

__
____After a year__:

*
*There were no changes in the interest rate.

*The price of the common share has risen from $10 to $15*.

............................................................................................

PRICE OF
BOND:
$1000
$1500 ***

INTEREST:
$100
$100

---------------
----------------

TOTAL RETURNS
($):
$100
$600

TOTAL RETURNS
(%):
10%
60%

===========
===========

*** ( CONVERSION RATIO X
PRICE OF COMMON SHARE )

(
100
X
$15
)
= $1,500

__
____RESULTS__:

This example demonstrate easily, the "huge" difference between
buying *Conventional bonds* and *Convertible bonds*.

For the same amount invested "__ in the same company__ ",
the

Conventional bond yielded a __10 % return__ while the

Convertible bond yielded a __60 % return__.

(DIFF-BON,14-01-00)