What is a convertible bond

A convertible bond is a type of corporate bond that gives the bondholder the option to convert the bond into a predetermined number of shares of the issuer's common stock within a specific time period. This means that the bondholder has the potential to benefit from any appreciation in the issuer's stock price, while still receiving interest payments on the bond. Convertible bonds are attractive to investors because they offer the potential for capital appreciation if the stock price of the issuing company increases. They also provide downside protection in the form of fixed interest payments and the return of the bond's principal at maturity if the stock price does not perform as expected. From the issuer's perspective, convertible bonds can be an attractive form of financing because they typically carry a lower interest rate than non-convertible bonds, due to the added potential upside for the bondholder. Additionally, the ability to convert the bonds into equity can help the issuer reduce their debt burden and improve their balance sheet. Overall, convertible bonds offer a unique combination of fixed income and equity exposure, making them a popular choice for both investors and issuers in the financial markets.