When a company has a negative net worth as a result of being bought out or going bankrupt, it may convert some of the bonds it has issued into shares of common stock.
Perhaps because each share is worth only a portion of the original bond's value, this new stock is known as stub stock.
The issuing company's financial instability makes stub stock a volatile investment. But if the company regains its strength, stub stock can increase dramatically in value.
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- Conversion price, Convertible hedge, Dilution, Preferred stock, Scrip, Scripophily, Treasury stock, warrant
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