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Originally Posted by redpoint5
What is a convertible bond, and how does the risk/reward sound to you as an investor?
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A convertible bond means that the principal can be converted to stock instead of paid back in cash if certain criteria are met.
As an investment the devil is in the details. Convertible bonds usually pay lower interest than a straight up bond. For the investor the risk or reward is all based on the difference in the stock price at maturity vs the conversion rate set when the bond is issued. If the stock price is higher at maturity than the conversion rate they win. If it is lower they at least get their money back*
*Assuming the company is still in business and has the cash to pay the principle.