Banking Term: Convertible Bonds

Find important banking term that is useful in upcoming banking exam.

Apr 29, 2015 11:42 IST

Banking Term: Convertible Bonds

  • A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm.
  • A conversion price is the specified value of the shares for which the bond may be exchanged.
  • The conversion premium is the excess of the bond’s value over the conversion price.
  • It is a hybrid security with debt- and equity-like features.
  • Convertible bonds are most often issued by companies with a low credit rating and high growth potential.

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