Define Convertible Bonds

Define Convertible Bonds FAQ

Why to consider convertible bonds?

Uses for investorsConvertible bonds are usually issued offering a higher yield than obtainable on the shares into which the bonds convert.Convertible bonds are safer than preferred or common shares for the investor. ...Also, convertible bonds are usually less volatile than regular shares. Indeed, a convertible bond behaves like a call option. ...

What does convertible bond mean?

convertible bond. a bond that can be exchanged for a fixed number of shares of the common stock of the issuing company at the holder's option.

What you should know about convertible bonds?

A convertible bond is a type of debt security issued by a company. Like other bonds, they promise to pay interest on a regular basis and have a stated maturity date when they return par. What makes these bonds “convertible” is that the holder of the bond has the right to convert it into shares of the company’s common stock.

Why do companies issue convertible bonds?

Companies issue convertible bonds or debentures for two main reasons: To lower the coupon rate on debt: Investors will generally accept a lower coupon rate on a convertible bond, compared with the coupon rate on an otherwise identical regular bond, because of its conversion feature.