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Hi
There is a point in my text book I wanted you to help me clarify please.
It says ” Convertible preference shares are fixed income securities that a investor can choose to convert into ordinary shares. The fixed income component offers a steady income stream and some protection of the investors capital. However the option to convert these securities into ordinary shared gives the investors the opportunity to gain from a rise of the share price”
my question is if I had a convertible preference share why would I not benefit from the rise of the share price? Why is it only if I have preference shares I will benefit from the rise/ fall in share price? If I have preference shares can I not sell my shared if the price of shares increases?
Thanks in advance?
Ready (and active) markets only really exist in the field of equity shares
Preference shares are actually very dull when compared with the highs and lows of owning equity shares
Yes, you can sell preference shares but there is not the same peaks and troughs of excitement and depression associated with equity shares
Does that explain it for you?
I see.. so you can still sell preference shares.. and benefit from the rise/fall of share price- but ordinary shares are available on ready and active markets… so they have more peaks and troughts… and one would benefit more from selling ordinary shares than preference shares.
yes I think I understand. Thanks
So if I wanted to buy a preference share in Microsoft now will they be available on the stock exchange?
Not that I’m aware of – to the best of my knowledge there are very few preference shares quoted on any stock exchange and I personally don’t know of any
And don’t forget that the holders of preference shares are entitled only to their fixed dividends and capital repayment on redemption or liquidation (if they’re lucky) whereas the holders of equity shares enjoy the possibilities of sharing in super dividends that can fluctuate as the entity enjoys great success (or no dividends when the entity goes into a period of recession)
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