Reverse Convertible Note - RCN


DEFINITION of 'Reverse Convertible Note - RCN'

A synthetic instrument that shares characteristics with both bonds and stocks. A reverse convertible note (RCN) typically provides high coupon payments and final payoffs that depend on the performance of an underlying stock.

BREAKING DOWN 'Reverse Convertible Note - RCN'

RCNs have a face value that matures as shares or cash (this is up to the issuer), and a fixed coupon rate based on bonds. This allows investors to optimize the diversification of their portfolios without necessarily buying both stocks and bonds. RCNs typically have high commission fees, and are considered by some money managers to be highly risky and even toxic assets.

  1. Derivative

    A security with a price that is dependent upon or derived from ...
  2. Security

    A financial instrument that represents an ownership position ...
  3. Bond

    A debt investment in which an investor loans money to an entity ...
  4. Synthetic

    A financial instrument that is created artificially by simulating ...
  5. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  6. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
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