Convertible Bond

What is a Convertible Bond?

Issuing bonds is a way for a business to raise larger amounts of finance from multiple investors. Bonds are more fully explained in our bonds payable tutorial.

A convertible bond is in effect a normal bond with a call option attached, the owner receives an interest payment (coupon payment) until maturity, and then has the option to convert the bond into shares in the business at a pre-agreed rate.

Due to the call option, a convertible bond tends to have a lower interest rate than a normal bond, thereby reducing interest payments for the issuing business. However, due to its hybrid nature (part equity, part debt), a convertible bond ranks lower than a traditional bond in the event of bankruptcy, and investors who buy convertible bonds therefore have less security and higher risk. The upside to the investor is the potential for gain on conversion of the call option.

A convertible bond is sometimes referred to as a convertible note, convertible debenture, or convertible securities.

For further information see the Wikipedia definition.

Learn a new bookkeeping term

Random bookkeeping terms for you to discover.

Link to this page

Click in the box to copy and paste this convertible bond definition link to your site.

Return to the Glossary

Convertible Bond June 5th, 2014Team

You May Also Like

Related pages

debtor turnover formulafuture value annuity table pdfhow to calculate annuity paymentsfuture value annuity table pdfperpetuity calculator future valuenpv with salvage valueis accounts receivable debit or creditformula for cogscredit voucher templatepurchase return and allowances normal balancecalculating interest on notes payableending inventory overstatedis unearned revenue an assetjournal ledger entriesjournal entries for provisionsageing accounts receivableaccounts payable formuladebtors control definitiontill reconciliation templategp gross profitfifo periodicbalance sheet reconciliation examplewhat is the salary of a bookkeeperwhat is owner's equityaccounts payable report samplejournal entry for depreciation expenseaccrual bookingmulti step income statement excel templateprofitability ratios definitionentry for deferred tax assetfv of an annuitycash conversion cycle equationsample chart of accounts for non profitdays accounts receivable ratiothe dupont equationdebtor days definitioncapital lease calculatoramortizing a bond discountaccounting rate of return arrcontra asset examplecredits and debits in accountingt accounts assets and liabilitiesdifference between imprest and petty cashdebit memo accounting entryspreadsheet accounts templatejournal entries and t accountspetty cash voucher formprepaid insurance definitionbad debt journal entry exampleaccumulated depincome account normal balanceobjective of bookkeepingfixed manufacturing overhead costaccounting fobhorizontal analysis calculatorfob origin vs fob destinationsum of years depreciation calculatordownload amortization schedulecvp formulapetty cash report formatformula for calculating gross profit percentagechart of accounts numbering systemgoods on consignment definitiont accounts debits and creditsexamples of asset accountsnpv formula for excelwhat is materials requisitionis advertising a fixed cost or variable costpresent value table annuitydiscounted cash flows in excelgross profit vs markupannuity calwhat is the quick ratio formulajournal entries for accrued incomejournal entry for bank reconciliationexamples of direct labor costscash disbursement formatkenexa prove it test tutorialpetty voucher