The owner of a convertible bond owns, in effect, both a bond and a call option.

Question

Quizplus · Accepted Answer

A convertible bond is a type of bond that can be converted into a specified number of shares of the issuing company's common stock. This feature gives the owner the option to convert the bond into stock if the stock price rises above a certain level. Therefore, the owner of a convertible bond owns both a fixed-income security (the bond) and an option to purchase stock (the conversion feature).

The Owner of a Convertible Bond Owns, in Effect, Both