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Zero-Coupon Convertible Security

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What is the definition of Zero-Coupon Convertible Security?

A zero-coupon bond that can be converted into the common stock of the issuing company when the stock reaches a predetermined price.

Using Zero-Coupon Convertible Security in an Example

A company issues a zero-coupon convertible security with a face value of $1,000, maturing in 5 years. The bond does not pay interest annually but can be converted into common stock if the company's stock price reaches $50 per share before maturity. If the stock price exceeds this threshold, the investor may choose to convert the bond into shares, potentially benefiting from the stock's appreciation.

Using Zero-Coupon Convertible Security in a sentence

The investment advisor recommended adding a zero-coupon convertible security to the portfolio as it combines the growth potential of equities with the price appreciation of bonds.

Related Terms

Zero-Coupon Bond

A bond on which the holder receives only one payment at maturity, which includes both the principal and the interest accrued from issuance to maturity.

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