convertible bond: meaning, definition, pronunciation and examples
C2Formal, Financial, Technical
Quick answer
What does “convertible bond” mean?
A type of corporate bond that can be converted into a predetermined number of shares of the issuing company's common stock at the bondholder's discretion.
Audio
Pronunciation
Definition
Meaning and Definition
A type of corporate bond that can be converted into a predetermined number of shares of the issuing company's common stock at the bondholder's discretion.
A hybrid financial instrument that combines the fixed-income characteristics of a bond (regular interest payments) with the equity upside potential of a stock, due to its embedded conversion option.
Dialectal Variation
British vs American Usage
Differences
No significant differences in definition or usage. Spelling conventions follow national norms for other words in a sentence (e.g., BrE 'analyse a convertible bond', AmE 'analyze a convertible bond').
Connotations
Identical in both varieties. Connotes sophistication, hybrid risk/return profiles, and corporate finance strategy.
Frequency
Equally frequent in professional finance and investment contexts in both the UK and US markets.
Grammar
How to Use “convertible bond” in a Sentence
[Company] issued a convertible bond [to raise capital].The [convertible bond] converts into [number] shares.The holder [of the convertible bond] may exercise the option.Vocabulary
Collocations
Examples
Examples of “convertible bond” in a Sentence
verb
British English
- The board decided to issue a convertible to finance the project.
- He plans to convert his bond when the share price peaks.
American English
- The company is looking to raise cash through a convertible.
- She converted her bonds immediately after the lock-up period.
adverb
British English
- [No standard adverbial form for this compound noun.]
American English
- [No standard adverbial form for this compound noun.]
adjective
British English
- The convertible-bond market was particularly active this quarter.
- They reviewed the convertible-bond terms carefully.
American English
- Convertible-bond issuance hit a record high.
- The fund has a convertible-bond strategy.
Usage
Meaning in Context
Business
The CFO proposed a convertible bond issue to fund the acquisition without immediately diluting earnings per share.
Academic
The 1980s saw significant innovation in the structuring of convertible bonds, particularly around reset conversion features.
Everyday
[Rarely used in everyday conversation. Might be paraphrased as] 'a company loan that can later be turned into shares.'
Technical
The convertible bond's parity value is calculated as the conversion ratio multiplied by the current underlying equity price.
Vocabulary
Synonyms of “convertible bond”
Strong
Neutral
Weak
Vocabulary
Antonyms of “convertible bond”
Watch out
Common Mistakes When Using “convertible bond”
- Mispronouncing 'convertible' with stress on 'vert' (/ˈkɒn.vɜː.tə.bəl/) instead of the correct 'ver' (/kənˈvɜː.tə.bəl/).
- Using 'convertible bond' to refer to an exchangeable bond (which converts into shares of a company other than the issuer).
- Treating it as two separate concepts: 'a bond that is convertible' rather than the fixed compound term.
FAQ
Frequently Asked Questions
The bondholder (investor) typically has the right, within specified periods, to convert the bond into shares. Sometimes conversion can be forced by the issuer under certain conditions (a 'call').
Generally, yes, due to its bond component. It provides regular interest payments and priority over stockholders in bankruptcy, but it is usually riskier than a straight bond because part of its value is tied to the volatile stock price.
If you never convert, the bond will behave like a standard bond until maturity. At maturity, you will receive the bond's face value (par value) in cash, assuming the issuer does not default.
The conversion ratio specifies how many shares of common stock one convertible bond can be converted into. For example, a ratio of 25:1 means one bond can be exchanged for 25 shares.
A type of corporate bond that can be converted into a predetermined number of shares of the issuing company's common stock at the bondholder's discretion.
Convertible bond is usually formal, financial, technical in register.
Convertible bond: in British English it is pronounced /kənˌvɜː.tə.bəl ˈbɒnd/, and in American English it is pronounced /kənˌvɝː.t̬ə.bəl ˈbɑːnd/. Tap the audio buttons above to hear it.
Phrases
Idioms & Phrases
- “[No specific idioms. The term itself is technical.]”
Learning
Memory Aids
Mnemonic
Think of a bond that is 'convertible' like a car – it starts as one thing (a fixed-income vehicle) but can transform into another (a stock/equity vehicle) at the driver's (holder's) choice.
Conceptual Metaphor
FINANCIAL INSTRUMENTS ARE TOOLS/VEHICLES (with convertible features allowing transformation).
Practice
Quiz
What is the primary advantage for a company issuing a convertible bond?