convertible bond


A corporate bond, usually a junior debenture, that can be exchanged, at the option of the holder, for a specific number of shares of the company's preferred stock or common stock. Convertibility affects the performance of the bond in certain ways. First and foremost, convertible bonds tend to have lower interest rates than non-convertibles because they also accrue value as the price of the underlying stock rises. In this way, convertible bonds offer some of the benefits of both stocks and bonds. Convertibles earn interest even when the stock is trading down or sideways, but when the stock prices rise, the value of the convertible increases.
Therefore, convertibles can offer protection against a decline in stock price. Because they are sold at a premium over the price of the stock, convertibles should be expected to earn that premium back in the first three or four years after purchase. In some cases, convertibles may be callable, at which point the yield will cease.

Use convertible bond in a sentence

Convertible bonds offer the benefits of both stocks and bonds since they can be changed to get the companyïs preferred stock.

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The individual wanted a safe investment so we put him in corporate bonds, specifically setting him up with a convertible bond as well.

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Convertible bonds offer stockholders the convertible experience in the economic world. They get the safety of a regular stock and excitement of feeling the wind through their hair with the bonds.

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