A convertible security refers to a type of security that can be changed. Convertible securities are preferred stocks or bonds that pay interest regularly and can be converted to common shares when the price of the stock appreciates up to a predetermined level (Noddings, 2001).
Since the capital market is sometimes unpredictable, investing in convertible securities would diversify my portfolio and give me a chance to switch to common stocks when economic conditions change. Therefore, I would invest in convertible securities despite the low interest rates they offer.
Selling convertible securities offers the company a chance to raise money without diluting the value of its common stock. Moreover, the company benefits from reduction of debts when convertible securities are transferred to common shares. Therefore, as long as the owners of securities are willing to purchase and convert their convertible securities into common stock, as a corporation I would be willing to sell convertible securities.
In buying and selling convertible securities, the goals of the investor and of the company issuing the securities conflict. The goal of the investor is to maximize earning from the securities, while the company aims at reducing the amount of interests paid to the investors.
Corporate bankruptcy is a genuine tool of enhancing the value of the firm. When an organization files for bankruptcy so that it can reorganize its operations and businesses, it is legitimate because it may recover and prevent shareholders from losing all their security. This view is based on the fact that if a firm is not performing well to pay off its debts and enhance shareholder value it then fails to execute its obligation. If the company collapses, only creditors and some shareholders may receive a token of their shares. Allowing a firm to file for bankruptcy so that it can reorganize its operations and give shareholders and creditors a chance of recovering what is owed to them by the company.