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.
Zero-Coupon Convertible Security
[ZEE-roh-KOO-pon kuhn-VUR-tuh-buhl suh-KYUR-i-tee]
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.
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