Convertible preferred stock behaves much like

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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 conversion ratio The ratio at which a convertible security can be exchanged for common stock. conversion price 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. Western...
View Full Document

Ask a homework question - tutors are online