Abstract
A general-purpose quantitative model of an investment in convertible bonds (corporation bonds which the holder may convert into stock) selling below par value (usually $ 1000) was developed using the GPSS simulation language. The simulation was written in such a way that all the variables are changeable as desired.
The model assumes an investor who manages his own account and purchases convertible bonds, using an account in which monthly investments are accumulated. The computation assumes that the maximum allowable amount is borrowed from the brokerage firm for the purchase using the purchased bonds as security for the loan, and that the account maintains itself (i.e., the the interest on and capital gains from the converti ble bonds pay the brokerage firm's interest charges and the income taxes on capital gains and on the interest earned by the bonds).
The results of the simulation runs, which cover a 20-year time period, give quantities for many items. An example of some of the quantitative values resulting from an exercise of the model are the following: the number of convertible bonds owned by the investor at the end of the time period, the amount of income from interest, the amount of interest paid on borrowed money, taxes paid on interest and capital-gains income, and many other quantities of interest when such an investment is undertaken.
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