Convertible Bonds-Corporate Bonds

Question

State the term Convertible Bonds in Corporate Bonds?

Answer 1

Convertible Bonds:

• Such are bonds which can be transformed into shares of common stock at certain predetermined ratio at the discretion of bondholder.

• The convertible feature permits the bondholders to share in good fortunes of the firm when the firm’s stock increases above some level.

• The conversion ratio is set and hence the firm’s stock price should appreciate 15 to 20 % before it is gainful to transform bonds into equity.

• To secure this benefit, bondholders would be willing to recompense a premium.