This number is set at the time of issue and is generally protected for stock dividends and other corporate eventualities. The universe of convertible securities consists mainly of convertible bonds and convertible preferred stocks, and both maintain a status senior to that of their underlying common stock. Tell me about the convertible market. They are corporate bonds with an important added feature. They offer capital appreciation potential that traditional bonds do not, since the convertible can be exchanged for shares of common stock at the option of the holder.
Convertibles combine stock market potential while fixed-income features help cushion the downside.
Because of the potential benefit derived from the conversion feature, convertibles typically have a lower yield than straight bonds. I need to know about some of the risks of convertible securities. While it is true that rising interest rates will have a negative effect on the bond value of the convertible security, the fact that the convertible also has equity value will tend to temper that effect. If the stock market is rising, convertible values will be more positively affected by rising stock values than negatively affected by rising interest rates. However, if the stock market declines at the same time that interest rates rise, it is possible that convertibles will lose value.