Question: I inherited some securities from my father. Some of them have conversion prices. They were in his safe deposit box. What exactly is the procedure?

A BuyandHolder

Answer:

Dear BuyandHolder,

To fully understand the meaning of a conversion price, we first need to take a look at convertible securities.

Convertible securities are those that, at the option of the owner, can be exchanged for another asset--generally a fixed number of shares of common stock.

Convertible issues are often (but not always) fixed-income securities, such as convertible bonds and preferred stock. It's quite likely that your father owned some or both. The prices of convertibles and preferreds are primarily influenced by changes in interest rates as well as by the value of the assets into which they may be converted or exchanged.

You can read all about preferred stock in a previous column. Click Here.

A convertible bond is a hybrid between a stock and a bond. Like a regular bond, it has a maturity date and a coupon rate. But it also can be converted into common stock of the company.

Companies like to issue convertible bonds because it saves them money -- the interest paid on them is usually lower than interest paid on bonds without the conversion feature.

Conversion Price

Now to your specific question. The conversion price is the price per share at which common stock will be exchanged for a convertible security.

The conversion price is determined and so stated when the security is first issued.

The number of shares to be received is the principal amount of the security divided by the conversion price (after the conversion price is adjusted for stock splits and dividends).

If your father's will did not leave instructions regarding what to do with the securities left in his safe deposit box, make photocopies of both sides of the certificates, leave the originals in his box (or in yours) and then get in touch with BUYandHOLD. We will help you determine their value as well as the conversion prices.

Good luck!