Definition
Convertible bonds are corporate bonds that can be exchanged for a predetermined number of common shares at the holder's option. They offer downside protection through bond features plus upside participation if the stock rises. Convertibles typically pay lower coupons than non-convertible bonds.
Formula
Conversion Ratio = Face Value / Conversion Price
Example
A $1,000 convertible bond with $50 conversion price can be converted into 20 shares. If stock reaches $60, shares are worth $1,200.
FAQ
What is Convertible Bond?
A bond that can be converted into a specified number of company shares.
How do you calculate Convertible Bond?
A common formula for Convertible Bond is: Conversion Ratio = Face Value / Conversion Price
Why is Convertible Bond important?
Convertible Bond helps investors evaluate fixed income and make more informed decisions.