A convertible bond is a type of bond that include the option for the bondholder to convert the bond into the share of issuing company’s common stock. The conversion ratio of convertible bond determines the amount and number of shares of stock that bondholder will receive upon conversion. The conversion ratio is typically expressed as a fixed number of shares per bond or the ratio between shares and bonds.
Conclusion
Convertible bonds offer investors the potential for income and equity with in a single investment. There are types of convertible bond available, and investors should consider the pros and cons of each before deciding to invest. While convertible bonds offer reduced the downside risk, they also come with lower yield and the risk of dilution if the bonds are converted in common shares. Overall convertible bond can be useful investment tool for those seeking income and equity participation.