medium · Investment Banking implied-share-price

Under the Net Share Settlement (NSS) method for convertible bonds, what portion of the principal is added to the diluted share count?

  1. The principal is treated as pure equity whenever the convertible bond happens to be in-the-money.
  2. Only the saved interest expense is added to the diluted EPS numerator calculation.
  3. None; only the in-the-money value is settled in shares, while the principal is paid in cash.
  4. The entire bond principal converts into common shares at the stated conversion price under this method.

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