Preferred Equity Redemption Stock (PERC) Definition

Definition

The word favorite equity redemption stock describes your security which comes with a compulsory conversion in adulthood. Preferred equity redemption stock (PERC) is also redeemed ancient by the issuing thing, however at a top.

Explanation

Also called preferred equity salvation accumulative inventory (PERCS), favorite equity payoff inventory is considered a equity derivative which involves a compulsory conversion to preferred stockexchange. The holder of this stock isn’t just eligible to this return on the security, but additionally funding appreciation (subject to a cap).

On the redemption date, which is normally three to four years following the issue , the holder of each share of PERC receives:

  • If the present price of average inventory is lower compared to the purchase price cap, then the holder receives one share of common stock for each share of inventory held.
  • If the present price of average inventory is greater compared to the purchase price cap, then the holder receives one share of common stock equal in value to the purchase price cap for every share of inventory held. By way of instance, when the cost cap is $20.00 and the present selling price of common stock is $25.00, preferred shareholder will buy $20.00 / $25.00, or 0.8 shares of common stock for every share of inventory held.