DEFINITION of 'Premium Adjustable Convertible Security - PEACS'

A debt instrument that combines a coupon paying bond with the option to convert the bond into common stock at a set price. These are frequently described as hybrid securities because they combine features of debt and equity, converting to ordinary shares at a set date based on a pre-determined ratio.

BREAKING DOWN 'Premium Adjustable Convertible Security - PEACS'

Convertible securities like PEACS allow investors to acquire a debt instrument with rights to interest and principal payments without sacrificing the chance to participate in the company's capital appreciation. When a company does well, investors can convert the debenture into stock that has a higher value. When a company is less successful, investors can retain the bond and receive interest and principal payments. Convertible-bond mutual funds can provide a diversified investment in convertibles. These funds are meant to offer most of the upside potential of stocks while limiting downside risk.

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