Conversion feature

Conversion feature
Specification of the right to transform a particular investment to another form of investment, such as switching between mutual funds or converting preferred stock or bonds to common stock.

conversion feature. The difference between this value and the issue price of the security is treated as being either an equity instrument or an embedded derivative, ...

A convertible bond, eventually convertible to common stock, will normally sell at a premium over its bond value because investors place a value on the conversion feature.

This type of stock comes with a conversion feature which allows you to convert it into common stock of the issuer at a predetermined rate.

Bond with a long-term, high-premium, common stock conversion feature and also offering a fairly competitive interest rate.

A similar bond without the conversion feature trades at $90. In this case, the premium is $15, or 16.66%=(105-90)/90. If the premium is high, the bond trades like any fixed income bond; if low, like a stock. See: Gross parity, net parity.

A long term bond that has a high premium common stock conversion feature and offers a competitive interest rate. Premium refers to the difference between the convertible bond's market value and the value at which it is convertible into common stock.

Many balloon mortgages offer a conversion feature that lets you extend the loan at a new interest rate. For instance, some balloon mortgages convert to a 30-year fixed-rate mortgage at the end of their original term.

The value of a convertible bond calculated as a straight bond without giving any value to the conversion feature. Although this is done according to normal bond calculations, the rate used to discount the bond is that for similar, nonconvertible debt.

The estimated price at which a convertible security would be valued if it did not have a stock conversion feature. A convertibles' investment value is determined by investment advisory services.

Finally, if the issuer becomes financially troubled, its credit rating will fall well below investment grade and the stock price will plummet to very low levels. Here the conversion feature is all but irrelevant.

High-premium convertible debenture
A bond with a long term, high premium, common stock conversion feature that also offers a fairly competitive interest rate.

Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.
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The date when put and call options and rights and warrants expire, as well as other privileges or conversion features.
Extendible Bond or DebentureExpand/Collapse ...

Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.

One example is a convertible bond. It can have a coupon and pay interest and therefore partially behave like a credit market instrument. However, its conversion feature also imbues the instrument with equity characteristics.

For example, a convertible bond generally has a coupon that pays interest, so it behaves somewhat like a credit market instrument. However, its imbedded conversion feature also makes it behave like an equity instrument.

Convertible loan stock benefits the creditor through the conversion feature, as the stock is convertible into shares of the company. An accompanying loan stock contract specifies the number of shares that the loan stock converts into, and the timing.

See also: Convertible Bond, Convertible preferred stock, Convertible security, Currency option, Banks