How Does The Conversion Price Of A Convertible Bond Effect The Value Of Preferred Stocks?
In financial law, a convertible bond , also known as convertible note or convertible bond, is an ordinary type of bond that the holder is permitted to convert into cash of equal legal value or a specified quantity of stock in the issuer. It is essentially a hybrid security with equity-like characteristics and debt-like characteristics. Convertible bonds are debt instruments that are backed by a certain amount of the underlying asset - usually the stock - and use derivatives as a means of exchanging the securities for cash. There are two types of convertible bond, namely, common bonds and preferred stocks. The second form of convertible bond is referred to as warrant bond. A convertible bond will convert into cash or into shares based on a number of different things. The most important thing that determines the conversion ratio is the price paid per share and the overall value of the entire portfolio. The price per share is usually determined by the Board of Directors in meeting or cons...