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Convertible Issue

A convertible issue refers to a security, such as a bond or preferred stock, that can be converted into common shares of the issuing company. Convertible issues provide investors with fixed income or dividends while offering the option to convert the security into equity, typically at a predetermined price. This feature allows investors to participate in the potential upside of the company’s stock, making convertible issues an attractive option for those seeking both income and growth potential.

Example

A company might issue convertible preferred shares that pay a fixed dividend but can be converted into common stock if the share price exceeds a specified threshold.

Key points

• A convertible issue is a security that can be converted into common stock.

• It provides income (interest or dividends) along with the option to convert to equity.

• Convertible issues appeal to investors looking for both income and potential stock appreciation.

Quick Answers to Curious Questions

Convertible bonds and convertible preferred stock are common examples of convertible issues.

They offer a combination of fixed income and the potential for equity upside, providing both stability and growth opportunities.

Investors typically convert when the company’s stock price rises above the conversion price, making the equity more valuable than the fixed-income security.