Some convertibles have rising rates of conversion specified. For example, the bond might be convertible at $50 for the first five years and at $60 for the next five. It is important, therefore, to know in detail the conversion terms and not allow, through carelessness, a conversion privilege to end without your taking action. Watch also to see if the convertible is called, in which case conversion may be compulsory. The Convertible Preferred The second convertible security, and a far less common one, is the convertible preferred. The principle is the same”the ownership of a senior security with a stated or fixed rate of return (a rather narrowly fluctuating market) and convertible into common.

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