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Unformatted text preview: early always a debenture—an unsecured bond—with a call feature.
Because the conversion feature provides the purchaser with the possibility of
becoming a stockholder on favorable terms, convertible bonds are generally a less
expensive form of financing than similar-risk nonconvertible or straight bonds. 684 PART 6 Special Topics in Managerial Finance The conversion feature adds a degree of speculation to a bond issue, although the
issue still maintains its value as a bond. Convertible Preferred Stock
convertible preferred stock
Preferred stock that can be
changed into a specified number
of shares of common stock.
straight preferred stock
Preferred stock that is nonconvertible, having no conversion
feature. Convertible preferred stock is preferred stock that can be changed into a specified
number of shares of common stock. It can normally be sold with a lower stated
dividend than a similar-risk nonconvertible or straight preferred stock. The reason is that the convertible preferred holder is assured of the fixed dividend payment associated with a preferred stock and also may receive the appreciation
resulting from increases in the market price of the underlying common stock.
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This document was uploaded on 01/19/2014.
- Fall '13