Convertible securities are securities which can be converted into the equity of the issuer of those securities. Convertible debt are bonds which can be converted at the decision, typically of the bond holder, into a predetermined number of shares of the issuer of the bond. The benefit this gives to the investor is that at predetermined dates, should they choose to do so, they can convert the debt into shares benefiting from good performance in the company's stock price. The bond indenture will specify this conversion rate, that is, the number of shares that can be accessed per bond and this effectively is a call provision which is a benefit to the investor. This benefit to the investor allows the company to reduce the amount of interest that they otherwise have to pay that investor. In terms of the impact on a company's earnings per share, if debt is converted into equity, it reduces the amount of interest that needs to be paid, boosting earnings, but it also increases the number of shares an issue increase in the denominator in the earnings per share calculation, so the outcome on an earnings per share calculation of a company's convertible debt being converted into shares is unknown. The market conversion price is the effective cost of buying shares through the convertible bond. The price to buy the bond is the convertible bond price which can then be converted into a predetermined number of shares in the company determined by the conversion ratio. So if we divide the convertible bond price by the conversion ratio, this gives you the effective cost of buying a share through the convertible bond.

Other kinds of convertible products include warrants. Warrants are typically issued with a bond, and a warrant will allow the holder to purchase a predetermined number of shares in the issuing company at a fixed price. This is very much like an equity call option, however, we'll be satisfied by the delivery of brand new shares in the underlying company, so as a result, the short side of a warrant can only be the company that is the issuer of the underlying securities. Where a warrant is issued with a bond, it places the investor in the same situation as had they acquired a convertible bond, in that, at the end of the life of the bond, you either hold the bond's redemption proceeds as cash or you convert that into a fixed number of shares. For the warrant, you would pay the par value that you've received from the redemption date to exercise the warrant and take delivery of a fixed number of shares. Convertible preferred stock is preferred stock which is paid a fixed dividend, but which can be, again, at the decision of the investor converted into a predetermined number of shares of the common stock of the issuer.