Convertible bond

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Convertible bond

General debt obligation of a corporation that can be exchanged for a set number of common shares of the issuing corporation at a prestated conversion price.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Convertible Bond

A bond that a bondholder may exchange, at a certain price, for common stock in the company issuing the bond. The number of shares one receives for each bond and the price one pays for those shares are determined when the convertible bond is issued. A convertible bond is a low-risk investment, but it affords the investor a great amount of leeway because he/she can exchange it for another security with higher risk and a higher return. Certain convertible bonds may only be exchanged at certain points in their lives. The extent to which bondholders exchange convertible bonds is sometimes seen as an indication of whether the share price is overvalued or undervalued. See also: Busted convertible, Overhanging bond, Convertible preferred stock.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Convertible bond.

Convertible bonds are corporate bonds that give you the alternative of converting their value into common stock of that company or redeeming them for cash when they mature.

The details governing the conversion, such as the number of shares of stock you would receive, are set when the bonds are issued.

A convertible bond has a double appeal for investors. Its market value goes up if the stock price rises, but falls only to what it would be as a conventional bond if the stock price falls. In other words, the upside potential is considered greater than the downside risk.

While convertible bonds typically provide lower yields than conventional bonds from the same issuer, they may provide higher yields than the underlying stock.

You can buy convertibles through a broker or choose a mutual fund that invests in them.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Bondholders are entitled to convert, at any time during the period commencing on the date following 20 calendar days after subscription date for the convertible bonds up to and including 15 November 2018, all or part of the loan amount into shares of the company.
In a concurrent buyback, Petropavlovsk offered USD1,080 per USD1,000 of existing USD100 million 9.00% convertible bonds due in 2020.
According to the company, the total consideration of the repurchase of the convertible bonds and the subscription right was USD13.6m in cash, excluding accrued interest.
The firm has appointed Xavier Lattaignant as its director of the convertible bond strategy.
As of 13 June, the shares of Ablynx were delisted from the regulated market of Euronext Brussels; the ADSs were delisted from the NASDAQ Global Select Market; and the convertible bonds were delisted from the open market Frankfurt MTF.
Digitalist said that on 4 April 2016, its largest shareholder Tremoko subscribed for the convertible bond directed to Tremoko in accordance with the decision of Digitalist's Annual General Meeting of 7 April 2016 in full, worth altogether EUR 9,200,000.95.
Fisch Asset Management, in partnership with The Gulf Bond and Sukuk Association (GBSA), held a workshop in the Dubai International Financial Centre (DIFC) on October 2 on the topic of Convertible Bonds in the Middle East.
Why are convertible bonds suitable for GCC issuers?
If they want to exit or reduce it over time, convertible bonds are an appealing instrument for them to do so.
SMIC is exercising its right to call or redeem the 1.625percent a year fiveyear convertible bonds by April 19 this year, the conglomerate disclosed to the Philippine Stock Exchange (PSE) Friday.
This week the bank announced on the stock exchange that Third Point and its associated companies bought, off-floor, e1/47.7m worth of convertible bonds from the Archbishopric at a discount price of e1/45.5m.
The convertible bonds are difficult to be priced due to embedded American-style options from the provisions, such as callability and puttability, where the ability of the issuing firm to exercise its options depends on the path of the underlying stock price.