strips & convertibles

[Neetu Verma]

any one decribe me the following question:
1)-What is the meaning of strips?
2)-How can we say that convertibles generally provide higher income than ordinary shares and lower income than conventional loan stock or preference shares?
(both topic contains chapter 11)

 

[John Lee]

any one decribe me the following question:
1)-What is the meaning of strips?
2)-How can we say that convertibles generally provide higher income than ordinary shares and lower income than conventional loan stock or preference shares?
(both topic contains chapter 11)

Strips are bits of a bond. For example a single coupon payment.

A convertible swaps from a preference share or unsecured loan stock to ordinary shares.

In the current market coupons are higher than dividends (pretty much most of the return for a bond is from the coupon whereas for a share it's in its capital growth - also there are tax reasons).

Hence the statement about income.