A synthetic instrument that shares characteristics with both bonds and stocks. Reverse convertible notes typically provide high coupon payments and final payoffs that depend on the performance of an underlying stock.A security that combines aspects of a stock and a bond. An RCN operates like a debt security that pays a fixed coupon, which is usually higher than the coupons for regular bonds. At maturity, the holder may choose to receive a certain amount of stock or cash equal to the value of that stock. RCNs allow the investor to diversify his/her portfolio while only incurring the expense of a single investment vehicle. It is a synthetic instrument that shares characteristics with both bonds and stocks. Reverse convertible notes provide high coupon payments and final payoffs that depend on the equity markets. RCNs have a face value that matures as shares or cash upon the discretion of the issuer, and a fixed coupon rate based on bonds. This allows investors to optimize the diversification of their portfolios without necessarily buying both types of products.
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. However, RCNs typically have high commision fees and are considered by some money managers to be highly risky and even toxic assets.