Convertibles

Some preference shares and some corporate bonds are convertible. This means that during their specified lives a regular dividend income is paid to holders, but there is also a fixed date when they can be transformed into ordinary shares – conversion is always at the owner’s choice and cannot be forced by the issuer.

Being bonds or preference shares with an embedded call option, the value is a mixture of the share price and hence the cost of conversion, and the income they generate.

Source: Becket Michael (2014), How the Stock Market Works: A Beginner’s Guide to Investment, Kogan Page; Fifth edition.