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

Accounting

Scenario:

Investing in a convertible note may have implications on our balance sheet. Let's explore the potential impact.

Response:

A convertible instrument would initially be recognized as liability when issued, altering our debt-equity ratio when converted. It's an important consideration.

Creative

Scenario:

Our startup needs to secure funding for the next phase of development. Could we examine if convertible securities might be a viable option for us?

Response:

Convertible securities indeed sound promising. They could provide us with immediate funds and give the investor the option to participate in our potential growth.