What is a reverse convertible bond?
High coupons are the hallmark of reverse convertible bonds. There is almost no other investment product which offers the opportunity of payouts of 7, 10 or even 12 per cent per annum. High coupons, however, correspond to a higher risk than a government bond: a reverse convertible bond refers to a certain share, especially shares of blue chip companies. At maturity the bond will be redeemed at 100 per cent of the nominal value or by delivery of a certain number of shares. In the case the share closes at the exercise day at or above a predetermined strike price, the issuer repays the nominal value, in the case of a share price below that level, the issuer delivers a certain number of shares. The coupon will be paid independently of the kind of redemption of the coupon. For the investor the maximum yield will be realised, if the bond is redeemed at 100 per cent. If shares are delivered the investor only suffers a loss in case the initial purchase price of the bond is higher than the marke
