Convertible Bond
A convertible bond is a fixed-income security that gives the holder the option to convert the bond into a predetermined number of the issuer's shares. The conversion terms—such as the conversion price and conversion ratio—are specified in the bond’s documentation and influence pricing.
Example: Example: A five-year convertible bond with a conversion price of $25 per share and a conversion ratio of 2 can be converted into 2 shares; if the stock price reaches or exceeds the conversion price, the conversion option has value.
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