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Convertible Shares

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Convertible shares are shares that, as the name implies, have the main characteristic that they can be altered, changing their original properties.

They have the ability to transform into bonds after a certain time, which will depend on each type of convertible. The opposite is also very common, that is, bonds become shares. For example, the shares may be preferred in the first instance and later, move to ordinary shares.

Any issue of convertible shares must be explained in detail, providing information by the company about its content.

You should inform about:

- The date of issue.
- Due date.
- The conversion price.
- The conversion ratio, which is defined as the ratio between the unit nominal value and the conversion price.
- The summary and the informative brochure of the conditions of the issue and the conversion period.

Convertible shares are associated with profiles of low-risk investors that start their activity in the world of the stock market, since they enjoy a fixed return, given that during a first stage they will have the characteristic of being a bond through which we will receive payments newspapers, to become an ordinary action at the end of the conversion, where the risk is greater.

Therefore, the investor who has faced that initial stage may feel more comfortable when he accumulates more experience, with the aim of benefiting from greater profitability, given that the volatility will be greater.

We say that in its first stage it's a bonus because it's the most common case of convertible stock. Seen in another way, it's a product that tries to seduce the inexperienced investor and is a way of capturing the attention of the company, since the initial characteristics conform to its profile, so that ultimately, the investment can be exposed to price appreciations or depreciations as a result of market fluctuations. In this case, the investor to subscribe and exchange the bond for an ordinary share, may collect the dividends that the company distributes among its shareholders.

The decision of this investment, technically speaking, is based on the security of receiving coupons or periodic payments safely where the price of the bond is low and its rate of return is attractive. However, if it's anticipated that interest rates may fall in the future, it may be convenient to carry out the conversion to an ordinary share as investors will have more incentives to demand it due to the low yields of fixed income.


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