Preference Equity Redemption Cumulative Stock - PERCS

AAA

DEFINITION of 'Preference Equity Redemption Cumulative Stock - PERCS'

A convertible preferred stock with an enhanced dividend that is limited in term and participation. Preference equity redemption cumulative stock (PERCS) shares can be converted for shares of common stock in the underlying company at maturity. If the underlying common shares are trading below the PERCS strike price, they will be exchanged at a rate of 1:1; but if the underlying commons are trading above the PERCS strike price, common shares are exchanged only up to the value of the strike price.


INVESTOPEDIA EXPLAINS 'Preference Equity Redemption Cumulative Stock - PERCS'

PERCS are essentially a covered call option structure, and are popular in an environment of declining yields because of the enhanced dividend. Upside profits are limited in order to produce a higher yield.

For example, if you own 10 PERCS with a strike price of $50, at maturity the following could happen:

-If, at maturity, the underlying asset was trading at $40, you would receive a total of 10 common shares, worth $40 each.

-If, at maturity, the underlying asset had doubled and was trading at $100, you would receive only five shares worth $100 each. The total value of the shares ($500) exchanged equals the strike price of $50 x 10 shares.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Covered Call

    An options strategy whereby an investor holds a long position ...
  3. Preferred Stock

    A class of ownership in a corporation that has a higher claim ...
  4. Yield

    The income return on an investment. This refers to the interest ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Strike Price

    The price at which a specific derivative contract can be exercised. ...
RELATED FAQS
  1. What is dilutive stock?

    Dilutive stock is any security that dilutes the ownership percentage of current shareholders - that is, any security that ... Read Full Answer >>
Related Articles
  1. Bonds & Fixed Income

    A Primer On Preferred Stocks

    Offering both income and relative security, these uncommon shares may work for you.
  2. Bonds & Fixed Income

    Introduction To Convertible Preferred Shares

    These securities offer an answer for investors who want the profit potential of stocks but not the risk.
  3. Options & Futures

    Cut Down Option Risk With Covered Calls

    A good place to start with options is writing these contracts against shares you already own.
  4. Options & Futures

    An Alternative Covered Call: Adding A Leg

    Try this approach to covered calls to increase your potential for profit in any market.
  5. Options & Futures

    The Basics Of Covered Calls

    Learn how this simple options contract can work for you, even when your stock isn't.
  6. Options & Futures

    An Alternative Covered Call Options Trading Strategy

    This different approach to the covered-call write offers less risk and greater potential profit.
  7. Options & Futures

    Going Long On Calls

    Learn how to buy calls and then sell or exercise them to earn a profit.
  8. Options & Futures

    Using LEAPS In A Covered Call Write

    Discover how strategy can help reduce your downside risk.
  9. Options & Futures

    Top Brokers Offering Tools For Covered Calls

    Here are the brokers that offer the best tools for investors and traders to write covered calls and covered puts.
  10. Economics

    Effects of OIS Discounting for Derivative Traders

    The use of OIS discounting has important implications for derivative valuations and could positively or negatively impact a trader's profit or loss.

You May Also Like

Hot Definitions
  1. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  3. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  4. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase ...
Trading Center