Read below to learn about bonds that can be converted into stock. Bonds with this feature are called convertible bonds . They give the investor the option to convert the bond into the issuing company's stock, generally the common stock. Conversion must occur at specified times, at specified prices and under specified conditions. All of these must be set down in writing at the time of issue.
Bonds can also be callable and convertible in one.
By this provision, the company can force investors to convert their bonds to stock. One advantage to the holder of a convertible bond is that he or she receives the low volatility of a bond and the ability to take advantage of the stock's growth. One disadvantage is that convertible bonds offer lower interest rates than non-convertible bonds. Another is that they are not secured . To be secured is to be backed by collateral .