Convertible Bond
Definition of 'Convertible Bond'A bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.Convertibles are sometimes called "CVs." |
|
Investopedia explains 'Convertible Bond'Issuing convertible bonds is one way for a company to minimize negative investor interpretation of its corporate actions. For example, if an already public company chooses to issue stock, the market usually interprets this as a sign that the company's share price is somewhat overvalued. To avoid this negative impression, the company may choose to issue convertible bonds, which bondholders will likely convert to equity anyway should the company continue to do well.From the investor's perspective, a convertible bond has a value-added component built into it; it is essentially a bond with a stock option hidden inside. Thus, it tends to offer a lower rate of return in exchange for the value of the option to trade the bond into stock. |
Related Definitions
Articles Of Interest
-
7 Unconventional Ways Businesses Can Borrow Money
Find out how your business can get the money it needs - even when the bank says "no". -
Leverage Your Returns With A Convertible Hedge
Find out how you can maintain your income stream by using this type of bond strategy. -
Convertible Bonds: Pros And Cons For Companies And Investors
Find out why businesses choose this type of financing and what effect this has on investors. -
Convertible Bonds: An Introduction
Find out about the nuts and bolts, pros and cons of investing in bonds. -
The Mandatory Convertible: A "Must Have" For Your Portfolio?
Mandatory convertibles are a little understood security with some distinct advantages. Find out if they are right for you. -
What is dilutive stock?
Dilutive stock is any security that dilutes the ownership percentage of current shareholders - that is, any security that does not have some sort of embedded anti-dilution provision. The reason ... -
Where does the stock come from when convertible bonds are converted to stock?
First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to convert a debt instrument into shares of the issuer's common stock, at ... -
What are 'death spiral' convertible bonds?
Conventional convertible bonds give the bondholder the right to exchange the bond for a certain amount of the issuer's common shares, regardless of the current market price of those shares. The ... -
Can private corporations issue convertible bonds?
The first step to answering this question requires defining the term "private corporation". Many times, the term "private corporation" refers to a privately held company that is either a sole ... -
What is the difference between convertible and reverse convertible bonds?
The difference between a regular convertible bond and a reverse convertible bond is the options attached to the bond. While a convertible bond gives the bondholder the right to convert the asset ...
Free Annual Reports