Stocks Intermediate: Introduction to Convertibility

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1.
A convertible security is often in the form of _______.
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Preferred stock or corporate bonds. Convertibles are often preferred stocks or bonds that can be exchanged for the companys common stock.
2.
A forced conversion is when a company calls, or redeems, its convertible securities.
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True. This does not happen completely by surprise, however. The possibility of being called is made known when the investors buy the convertibles.
3.
Compared to a companys common stock, its convertibles generally are less volatile.
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True. If the companys common stock price declines, the price of its convertibles usually will not fall as far.
4.
Unlike common stock, convertible securities generally offer a regular income.
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True. Convertibles offer regular incomeguaranteed either as dividends in the case of preferred stock or interest in the case of bonds.
5.
With a convertible bond, the conversion ratio defines _______.
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The relationship between the par value of the bond and the number of shares for which it can be exchanged. Investors use the ratio to determine whether the convertible bond is a good deal for them.