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Abount Convertible Bonds

Convertible Bonds exhibit the characteristics of a fixed income security. An investor collects regular coupon payments and receives the invested capital at maturity. What differentiates a convertible bond from a straight bond is the embedded call option, to exchange the convertible bond into shares. As a result, convertible bonds perform partly like any bond instrument and partly like stocks.

Whenever it becomes advantageous for an investor, to exercise his right to exchange the bond into shares, the return profile of a convertible bond will resemble the profile of a stock. If the exercise is not attractive, the investor will decide not to exercise his right and will be paid back the initial capital at maturity.