What it is:
A hybrid security is a security that has characteristics of one or moreclasses.
How it works (Example):
For example, a bond that allows the holder to exchange the bond for other securities (usually the 's ). Mechanically, convertible let the holder use the par value of the bond to purchase other securities from the at a specified price.is a hybrid security because it is a
For example, consider a Company XYZ bond with a $1,000 par value that is convertible into Company XYZ shares ($1,000 / $25 = 40). In this scenario, we would say that the conversion ratio is 40:1. Many are callable, meaning that under certain circumstances the issuer can redeem them before they mature.. If the conversion price of the common is $25, then the can convert each of his or her into 40 Company XYZ
Why it Matters:
coupon, and their prices are based on prevailing rates and the credit quality of the . Because conversion would losing those interest payments, investors also compare the coupon payment of the to the dividend yield of the common when they're thinking of converting.require their investors to conduct extra analyses. For instance, the conversion price is not the only aspect of a to analyze. Like other , convertible usually a
Another thing to consider when call option). The more volatile the price when in this zone, the more volatile the price. Interestingly, this relationship allows convertible bondholders to participate in the company's price .in is their trading behavior. For instance, the more a is " ," that is, the more the of the exceeds the conversion price, the more the itself trades like a . The 's price tends to rise as the price approaches the conversion price (similar to a