CONVERTIBLE BOND Meaning and
Definition
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A convertible bond refers to a type of bond that can be converted into a specified number of shares of the issuing company's common stock or another form of equity security within a predetermined conversion period. It combines the features of a traditional bond with the optionality of converting it into shares of stock.
Typically, convertible bonds offer a lower coupon rate compared to regular bonds as they offer the potential for capital appreciation through conversion. The conversion ratio determines the number of shares that can be obtained by converting each bond, and it is usually fixed at the time of issuance. Thus, if the stock price rises significantly, the bondholder has the advantage of converting the bond into shares and participating in the stock's upward movement.
Convertible bonds provide investors with the flexibility to capitalize on potential future gains in the issuing company's stock price while still maintaining a steady income through fixed interest payments. As a result, these bonds are often seen as a hybrid investment, combining features of both debt and equity securities.
Investors are attracted to convertible bonds due to the potential upside of stock ownership while also having limited downside protection from the bond's fixed income stream. However, it is important to note that the value of convertible bonds can be influenced by various factors such as interest rates, stock volatility, and the financial health of the issuing company.
Common Misspellings for CONVERTIBLE BOND
- xonvertible bond
- vonvertible bond
- fonvertible bond
- donvertible bond
- cinvertible bond
- cknvertible bond
- clnvertible bond
- cpnvertible bond
- c0nvertible bond
- c9nvertible bond
- cobvertible bond
- comvertible bond
- cojvertible bond
- cohvertible bond
- concertible bond
- conbertible bond
- congertible bond
- confertible bond
- convwrtible bond
Etymology of CONVERTIBLE BOND
The word "convertible" in "convertible bond" derives from the verb "convert", which comes from the Latin word "convertere". This Latin term is a combination of "com" (together) and "vertere" (to turn). "Convertible" signifies the ability to be turned or transformed into something else.
The word "bond" in "convertible bond" comes from the Old English word "bonda", which means "slave" or "serf". Over time, its meaning evolved to represent a binding agreement or obligation. In finance, a bond refers to a debt instrument or security that is issued by a company or government to raise capital.
Similar spelling word for CONVERTIBLE BOND
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