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Unformatted text preview: ible preferred stock behaves much like convertible bonds. The following
discussions will concentrate on the more popular convertible bonds. General Features of Convertibles
Convertible securities are nearly always convertible at any time during the life of
the security. Occasionally, conversion is permitted only for a limited number of
years—say, for 5 or 10 years after issuance of the convertible. Conversion Ratio
The ratio at which a convertible
security can be exchanged for
The per-share price that is
effectively paid for common
stock as the result of conversion
of a convertible security. EXAMPLE The conversion ratio is the ratio at which a convertible security can be exchanged
for common stock. The conversion ratio can be stated in two ways.
1. Sometimes the conversion ratio is stated in terms of a given number of shares
of common stock. To find the conversion price, which is the per-share price
that is effectively paid for common stock as the result of conversion, divide
the par value (not the market value) of the convertible security by the conversion ratio.
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- Fall '13