Explaining Bond Features
The annual report for Disney Company contained the following note:
The Company has outstanding $1.3 billion of convertible senior notes due on April 15, 2023. The notes bear interest at a fixed annual rate of 2.13 percent. The notes are convertible into common stock, under certain circumstances, at a conversion rate of 33.9443 shares of common stock per $1,000 principal amount of notes. This is equivalent to a conversion price of $29.46.
When the notes were issued, interest rates were much higher than the 2.13 percent offered by Disney. Why would an investor accept such a low interest rate?
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