Convertible Bonds
A convertible bond is a hybrid security that functions initially as a debt instrument, paying a fixed interest rate to the holder in exchange for a loan. Upon maturity, the bondholder has the option to either convert the bond into a predetermined number of shares of the issuing company's stock or to receive the bond's face value in cash. If the holder chooses not to convert the bond, the face value is paid back upon maturity. This feature provides the bondholder with potential upside through equity conversion while offering the safety of fixed income.
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