A convertible bond is a fixed income security that pays interest and it can be converted into a set number of company share. It combines the steady income of a bond with an option to convert bond into equity. Investor can choose the option to convert the bond into share for a specific time, with conversion detail set when the bond is issued to issuer. This allows them to earn regular interest while also benefiting from potential increase in market stock price. Convertible bond offers a flexible fund-raising option along with that they provide investor with both bond safety and stock ownership. They provide similar feature to cooperate bond with fixed investment period and interest pay outs. In terms of interest rate, the convertible bond has low interest compare to cooperate bond due to the option of convertible bond into the equity share.
A convertible bond is an elastic kind of finance offered to a corporation. A convertible bond grants the investor a kind of hybrid security; that is, it makes payments in interest for a bond while at the same time making the possibility of owning stock real. The conversion ratio of this bond determines how many shares of stock you would get from converting one bond. For instance, 5:1 means that one bond would convert to five shares of common stock.