Nonetheless, a big part of a convertible's potential value and its returns depend largely on how well the underlying common stock is doing or is expected to perform. Thus, the rank of the underlying common stock on a convertible is a major factor in determining the rank of the convertible. Other factors taken into account when determining a convertible's rank include its investment value, current yield and yield to maturity, projected leverage relative to the underlying stock, and call terms. The ranks assigned to common stocks predict price performance only. The ranks assigned to convertibles and warrants predict total return, including both price change and interest or dividend income.
Investment risk is measured in terms of price volatility.
A convenient way to visualize risk is in terms of the risk in the average stock. In the Value Line Convertibles Survey, you will find the relative volatility of every convertible and warrant, as well as those of their underlying stocks. This makes it easy to select only those issues whose risk is in a range acceptable to you. We hope that these sessions are beneficial to you and are providing the necessary groundwork to help you make your investment decisions. Factual material is obtained from sources believed to be reliable, but the publisher is not responsible for any errors or omissions, or for the results of actions taken based on information contained herein.