Reverse Convertible Note - RCN

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Security

    A financial instrument that represents: an ownership position ...
  3. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  4. Synthetic

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

    A security whose price is dependent upon or derived from one ...
  6. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
RELATED FAQS
  1. What is the difference between convertible and reverse convertible bonds?

    The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While ... Read Full Answer >>
Related Articles
  1. Economics

    Portfolio Mismanagement: 7 Common Stock Errors

    Don't lose your shirt over these seven simple - and preventable - investment follies.
  2. Options & Futures

    Massive Hedge Fund Failures

    Flying high one day but not the next - see the stories behind some spectacular meltdowns.
  3. Options & Futures

    An Introduction To Reverse Convertible Notes (RCNs)

    When stocks are stagnant and fixed-income yields are crumbling, RCNs come to the rescue!
  4. Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For Companies And Investors

    Find out why businesses choose this type of financing and what effect this has on investors.
  5. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  6. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  7. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  8. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.
  9. Bonds & Fixed Income

    How Rate Hikes Will Affect Your Investments?

    An interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.
  10. Professionals

    Is Now the Time for Junk Bonds?

    A bet on high-yield bonds is a bet that the global economy will continue to improve...but not too much.

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

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

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

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

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

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center