CONVERTIBLES AS STOCKS
Convertible securities do not appreciate as much as their
underlying stock. However, they do provide investors with a regular source
of income while the investors wait to capitalize on the convertible's stock
value.
Investors buy convertible bonds because they pay interest and
offer the potential for appreciating capital. They also provide increased
downside protection. If the underlying stock price drops, the investor
still has the value of the bond's fixed interest to fall back on.
An increase in the price of the underlying stock usually leads to
an increase in the price of the convertible bond. Convertible investors
protect themselves against price loss without sacrificing the opportunity to
cash in when stock prices rise.
Convertible bonds are fast becoming a very popular type of
investment. Let's summarize why in the conclusion to this
tutorial.
