CONVERTIBLE SECURITY Meaning and
Definition
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A convertible security refers to a financial instrument that has the potential to be exchanged for another security, usually shares of common stock, at a later date. This type of security combines both debt and equity features, giving the investor the option to convert the security into a predetermined number of shares of stock.
Generally, a convertible security takes the form of a bond or a preferred stock. These securities typically have a fixed interest rate or dividend payout, similar to standard bonds or preferred shares. However, what sets them apart is the conversion feature, which allows the holder to convert the security into common stock based on a predetermined conversion ratio.
The conversion ratio defines the number of shares that can be obtained per convertible security unit. This ratio is usually determined at the time of issuance and is stated in the terms of the security. If the holder decides to convert, they will surrender their convertible security in exchange for the predetermined number of common shares.
Convertible securities provide investors with the potential to participate in the upward movement of the issuing company's stock price while still receiving periodic interest payments or dividends. They offer a way for companies to raise capital by issuing debt-like securities that can be converted into equity if desired by the investor. As a result, convertible securities bridge the gap between traditional debt and equity instruments, allowing for flexibility in investment strategies.
Common Misspellings for CONVERTIBLE SECURITY
- xonvertible security
- vonvertible security
- fonvertible security
- donvertible security
- cinvertible security
- cknvertible security
- clnvertible security
- cpnvertible security
- c0nvertible security
- c9nvertible security
- cobvertible security
- comvertible security
- cojvertible security
- cohvertible security
- concertible security
- conbertible security
- congertible security
- confertible security
- convwrtible security
Etymology of CONVERTIBLE SECURITY
The word "convertible" in the term "convertible security" comes from the Latin word "convertibilis", which means "capable of being converted". The term "security" in this context refers to a financial instrument or investment.
In the world of finance, a convertible security is a type of investment that can be converted into another form of security, typically a common stock. It allows the holder to convert the security into a predetermined number of shares of common stock at a specified conversion price. This ability to convert from one type of security to another is where the term "convertible" is derived from.
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