Convertible Bond

AAA

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.

VIDEO

RELATED TERMS
  1. Convertible Hedge

    A trading strategy that consists of a long position in a company's ...
  2. Revertible

    Refers to a special kind of convertible corporate bond that automatically ...
  3. Conversion Price

    The price per share at which a convertible security, such as ...
  4. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  5. Mandatory Convertible

    A type of convertible bond that has a required conversion or ...
  6. Busted Convertible Security

    A convertible security that is trading well below its conversion ...
Related Articles
  1. 7 Unconventional Ways Businesses Can ...
    Entrepreneurship

    7 Unconventional Ways Businesses Can ...

  2. Leverage Your Returns With A Convertible ...
    Bonds & Fixed Income

    Leverage Your Returns With A Convertible ...

  3. Convertible Bonds: Pros And Cons For ...
    Bonds & Fixed Income

    Convertible Bonds: Pros And Cons For ...

  4. Convertible Bonds: An Introduction
    Bonds & Fixed Income

    Convertible Bonds: An Introduction

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center