A convertible bond is a bond issued by a corporation that, unlike a regular bond, gives the bondholder the option to trade it in for shares in the issuing company. This gives the bondholder both a fixed-income investment with coupon payments as well as the potential to benefit from an increase in the company’s share price. The additional value of the conversion option, however, will mean that the coupon payment on the bond will be lower than that of an equivalent bond with no conversion option.
- What is a convertible bond?. Investopedia.com.