Struggling with Convertible Securities

I don’t think I have gotten any of the convertible securities questions right and if I have it was purely a good guess. I knew I needed to revisit the Convertible Preferred section but now that I am working on Convertible Bonds and the math is similar, I feel like now is a good time to master it before moving on. Does anyone have any suggests on how to remember the order of math/formulas involved to arrive the the write conclusion?

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Hi @Kim_Stanton, thanks for reaching out. I don’t have any specific tips, but if a topic like this isn’t sticking, it can be helpful to take a brief break, and then re-read the section from the start, like you’re reading it for the very first time.

Oftentimes the reason topics like this are tough is because something was distracting you on the first pass, so the information was never really learned thoroughly, and actively taking the stance of re-learning can get you back on track.


I’ll try to help. Not knowing what part of the topic is tough, I will assume all of it may be.
I have had a couple of tough topics and relate to the frustration. I’m working on the 65, so not sure if your material is much different.

My suggestions:
Go back to the preferred convertible stock chapter at the beginning. I do not know how you learn, but as much as possible, try to learn and understand the concepts. Practice explaining them out loud as if you had to explain them to a friend or colleague in your own words. Write down the steps of the transaction for a while, even if you think you do not need to. Focus on understanding the concepts and less on the memorization. Eventually, address memorization for those items where there is simply no other option.

When you get to the videos and sample problems/questions in the lessons, go through the math yourself. That can be helpful. Stop the video step by step, even if it takes a while to get through them and do not go on until you understand each step. You might also find it helpful to re-watch the video (if there is one) after reading a lesson.

If you understand the concepts, but have trouble remembering certain terms or formulas, for example, here are a few tricks you might use for that –

  1. To calculate conversion price - look at those formulas in the Key Points sections. The conversion price for convertible bonds and preferred convertibles are the same – Par value/conversion ratio. They start with par on top – you have to have par (the security) before you can even think about converting it. So, that is an example of remembering something by association.

  2. When you see a practice question or example in the lesson, say out loud what is happening – what is the transaction. That may help to reinforce the concept.

  3. Use association as a way to remember something. I used to have trouble remember that a debenture was unsecured – have no idea why. Finally, I used the word “bent” from debenture in the (somewhat silly) context of thinking of a bent (screwed up or potentially more problematic) bond meaning it is not backed by collateral. I am not saying a debenture is screwed up, but that it is a trick to remember something and it often works.

  4. If you are working on convertibles, you may have already mastered stock splits. I do not want to create confusion for anyone, but convertibles are similar concept in that there is a ratio that determines how many shares of common stock you get for every share of preferred stock or every bond. Practice the examples in the lesson.

  5. I had trouble remembering the parity ratios in the beginning. If that is the case, try repeating the quizzes on that/those chapters several times or more at the same sitting so that there is some repetition. consider having the relevant lesson open in another tab or window to be sure you do the calculations correctly the first few times, if necessary. Then close the tab eventually. I still have to think a moment about those parity formulas – what I do to recall them is to remember that only common stock (price) is multiplied by the conversion ratio. Everything else on that topic is a default to division. In other words - PPofPS is Common stock price x conversion ratio.
    That means that the others are a division problem.
    PPofCS = Preferred stock/conversion ratio
    Bond PP = stock price/conversion ratio

Bonds and Preferreds are both fixed income, so they are both in the equations that are division. Again, use the fixed income concept to remember by association.

I got off topic a bit at the end, used it for an example.

Sorry a bit long-winded. I hope something in here may be helpful. If you have a more specific question, I’ll try to address it.

And, I agree with Justin. I have given myself a break – up to a day or so – and come back to material finding it easier. Some topics take time to digest.


This was very helpful. Thank you for taking the time to break it down like this!

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@Kim_Stanton You are welcome. I’ll try to answer other questions as they come up.
I am working on the Series 65 and find that when I get to an unusually challenging topic, it gets easier if I let it simmer for a few days and then go back and redo it in small pieces at a time.

I’ve been trying another strategy lately, though it sounds a bit silly. We have a Bernese Mountain Dog who is quite expressive. When I have trouble remember a topic – good example is a formula such as for alpha or capital asset pricing model. I talk through each step out loud to my dog as if I am explaining it to another person. For me, that is more effective than talking it out to a wall!