Roger's 1997 Short Picks Message Board

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Strategies & Market Trends : Roger's 1997 Short Picks

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To: Bearded One who wrote (6989)	11/14/1997 8:10:00 AM
From: Pancho Villa	of 9285

Bearded One, RE: AOL convertible bedt. Cool back of the envelope analysis! Don't know if the extra work is worthed here but one could throw in a couple of refinements: 1. The interest AOL could have gotten in a non-convertible should be close to the average yield for debt of similar characteristics for companies with the same Moody's rating as AOL. Let's assume this is indeed as you said around 7%.(I am big in theory not so good in the practical aspects. Where could one get the Moddy's inf. for free in the net?). 2. from the difference between this and 4% (i.e., 3%, you calculated an annual savings of $10.5 million during five years. Instead of multiplying times 5, one could take into consideration the time value of money and calculate the present value of an annuity of $10.5 Million during 5 years discounted at 7%. From an annuity table the factor is 4.1002. So the present value of the options is: 10.5*4.1002=$43.05 million. From this the option price is: 43.05/3.3=$13.04. Now, I do not trade options so you take over from here... Pancho

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