A preferred share that is embedded with an option for the holder to convert it into a specific number of common stock after the passage of a certain period of time. Convertible preferred share is a hybrid security, as it combines the fixed-income properties of preferred stock with the convertibility option.
Convertible preferred shares offer investors (holders) the potential to earn a better return as compared to other fixed-income securities. However, the amount of risk involved would be lower than that associated with investment in a common share.
This type of preferred share comes with a pre-determined conversion ratio, which specifies the number of common stock that would be received per a preferred share.
