Real-Life Math -- Solution
To find out how much your client will have to pay for the privilege
of converting the debenture into common shares (commonly called the conversion
premium), you first have to calculate the market price of the debenture
and the shares:
Market price of debenture = $1,000
x 1.1125 = $1,112.50
Market price of shares = 140 x $7.80
= $1,092
Secondly, subtract the market price of
the shares from the market price of the debenture:
$1,112.50
- $1,092 = $20.50
Your client will pay a conversion premium
of $20.50 for the privilege of converting the debenture into common shares
of GEM Motors.
As a stockbroker, you don't need to be a math whiz.
The analysis of stocks is done by analysts in your firm who produce research
reports. These reports contain recommendations on various stocks that you
will share with your clients. You will still need some math skills, however.
"There
isn't really a whole heck of a lot of knowing math, other than the basics
of math -- adding, subtracting, division," says Brian Paragamian. He's a former
stockbroker who teaches stock trading online.
Paragamian says it's
important for stockbrokers to be comfortable with numbers. Numbers are behind
every decision a stockbroker makes -- or advises others to make.
"If you're going to talk about stocks from a fundamentals perspective, you
have to know how to interpret balance sheets and income statements and things
of that nature," says Paragamian. "If you're going to be a broker who trades
stocks frequently, then you have to know technical analysis."