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Convertible Bonds

by Cara Scatizzi

Convertible Bonds Splash image

Investors typically classify investments into either the fixed income or equity category. But not all securities fit into only one niche.

Convertible bonds have both bond-like and stock-like features.

A convertible bond is a bond that provides a stated coupon, but that also gives the holder the right to convert the bond to a specified number of shares of the issuing company’s common stock. Depending on market conditions, an investor’s return may be more bond-like, based on the stated interest rate, or it may be more equity-like, due to its conversion features.

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Cara Scatizzi is a former associate financial analyst at AAII.


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