convertible-security

Vocabulary Word

Definition

A 'convertible security' is a type of investment that can be changed into another form. Typically, it is a type of bond or preferred stock that can be converted into common shares of the company.

Examples in Different Contexts

Convertible securities are hybrid financial instruments that combine features of both debt and equity, offering the option to convert into a predetermined number of shares. An investment strategist might discuss, 'Convertible securities are an integral part of our portfolio, providing income and the potential for capital appreciation.'

Practice Scenarios

Business

Scenario:

The company needs additional funding for future expansions. Should we consider issuing debt, equity, or possibly a combination of both?

Response:

What about issuing convertible securities? It may provide us flexibility, potentially lower costs, and the potential to attract a wider investor base.

Impact

Scenario:

As we look to invest in green energy companies, consider the risk and return parameters. Is there any instrument that could potentially offer us lower risk and higher return?

Response:

Perhaps we should consider convertible bonds. They offer both the regular income from interest payments and the potential upside of converting bonds into equity.