Convertibility and Forced Conversion

What this video covers

• How to calculate the conversion ratio using par value and conversion price, and why this tells you how many common shares the holder receives
• How to calculate conversion value by multiplying conversion ratio by current common stock market price, and why this is a real-time moving target
• Why a convertible security pays a lower coupon or dividend than a comparable non-convertible security, and what the holder sacrifices for the conversion feature
• The exact three-step sequence of a forced conversion: issuer calls, holder compares conversion value to call price, holder converts when conversion value exceeds call price
• Why "forced" describes the economic incentive, not a direct action by the issuer, and what happens if you picture the issuer converting the security directly
• How forced conversion transforms a fixed-income position into a common stock position, and what that means for scheduled principal return, dividend dependence, and liquidation priority
• Why the customer's investment objective has not changed even though the holding that served it has vanished on the issuer's schedule