Valuation of MSFT 2.5% Convertible Exchangeable Preferred
At maturity The annualized minimum return on investment would be 2.75 percent if, in three years, the stock were worth $79.875 or less. The maximum annualized return on investment over three years would be 11.4 percent if the stock were $102.24 or greater.
Within the life of the instrument, the equivalent synthetic is Long common stock at 79.875. Long put on common stock at a strike price of 79.875, expiration December 15, 1999. Short call option with a strike of 102.24, expiration December 15, 1999. Yield advantage over common stock 2.75 percent.