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Convertible Securities

Convertible securities can be exchanged or converted into common shares. Examples are convertible preferred stock, convertible bonds and the like.

Such securities are deemed to be only one step short of common stock. Their value stems in large part from the value of the common to which they relate.

Additional Comments:

Convertible preferred stock and convertible bonds offer their holders some choices. A holder can elect either (1) a return at the specified dividend or interest rate, or (2) conversion into common stock and participation in market appreciation and dividends resulting from increased earnings on the common stock.

However, the securities don't have to be actually converted to common stock for them to be called expotential common shares� because they enable holders - in certain circumstances - to cause an increase in the number of common shares by exercising, exchanging or converting.

Related Terms:

A share of a company's stock translates into ownership of part of the company. Thus, when ...

Financial Leverage
Financial leverage relates a company's long-term debt and preferred stock to the company's common equity. ...

Underlying Security
The security that may be bought with a call, or sold with a put. On Series ...

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