Convertible security
Encyclopedia
A convertible security is a security
that can be converted into another security. Most convertible securities are bonds
or preferred stocks that pay regular quarterly interest and can be converted into shares of common stock
if the stock price appreciates to a predetermined level.
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
that can be converted into another security. Most convertible securities are bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
or preferred stocks that pay regular quarterly interest and can be converted into shares of common stock
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
if the stock price appreciates to a predetermined level.
Types
- Convertible bondConvertible bondIn finance, a convertible note is a type of bond that the holder can convert into shares of common stock in the issuing company or cash of equal value, at an agreed-upon price. It is a hybrid security with debt- and equity-like features...
- Convertible preferred stock
- Reverse convertible securitiesReverse convertible securitiesA reverse convertible security or reverse convertible is a short-term note linked to an underlying stock. The security offers a steady stream of income due to the payment of a high coupon rate. In addition, at maturity the owner will receive either 100% of the par value or, if the stock value...
- Embedded optionEmbedded optionAn Embedded option is a component of a financial bond or other security, and usually provides the bondholder or the issuer the right to take some action against the other party. There are several types of options that can be embedded into a bond. Some common types of bonds with embedded options...