Fixed income equivalent
Fixed income equivalent
Also called a busted convertible. Convertible security that is trading like a straight security because the optioned common stock is trading well below the conversion price.
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Busted Convertible Security
A convertible security in which the underlying stock is trading 50% or more below the value of the convertible option. This renders the convertible option nearly worthless, and the security acts like common debt. This is considered a low risk investment with the possibility of high return because a busted convertible usually has a fixed return, and there is a small chance that the stock will recover allowing the investor to exercise the convertible option.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved