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.