Convertible bonds combine the security of bonds with the opportunity to make gains from the appreciation of common share prices. Unsecured promises to pay. As an obligation to pay interest and principal, a note ranks behind all other fixed-interest securities issued by a borrower. A rise or fall in profits can affect the amount of capital available for business spending and expansion, so profitability is a closely watched indicator. But the coupon also is used as a term for the rate of interest a bond pays.
Yield is the current return on a bond in the market.
As market conditions change, yields on bonds rise or fall. If a bond is bought at par, then the yield and the coupon rate are the same. But if the yield falls, the price of the bond must rise. And rising yields mean falling prices. The writer of an option who collects premium income while holding an offsetting position in the underlying security.