Convertible bond
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
A bond that the holder may convert into a fixed number of the issuer's shares.
Convertible bond in plain English
A bond is basically a loan you give a company: they pay you interest and return your money later. A convertible bond adds a bonus option — instead of just taking your cash back, you can swap the bond for a set number of the company's shares. That gives you the safety of a loan if the business stays flat, but a chance to ride the upside if the stock takes off, like a coupon that pays you steadily but can also be traded in for something more valuable if things go great. Because of that built-in upside, companies can offer convertibles at a lower interest rate than plain bonds.
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