Exchangeable Debt

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Exchangeable Debt

A debt security that the holder may exchange, at a certain price, for common stock in the company other than the one that issued the debt security. The number of shares one receives for each security and the price one pays for those shares are determined when the exchangeable debt is issued. Most of the time, the common stock is in a subsidiary of the company that issued the exchangeable debt. Exchangeable debt is a low-risk investment, but it affords the investor a great amount of leeway because he/she can exchange it for another security with higher risk and a higher return. Exchangeable debt operates like a convertible bond; the main difference is the fact that in a convertible bond the common stock that one may buy is the stock of the company issuing the bond rather than that of a subsidiary.
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