Understanding Convertible Bonds: A Comprehensive Guide
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Convertible bonds are a type of investment that can be converted into a predetermined number of shares of the issuing company's stock.
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Convertible bonds offer the benefits of both stocks and bonds, providing investors with the potential for capital appreciation and income.
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The conversion ratio determines how many shares of stock the bond can be converted into.
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Convertible bonds typically have lower interest rates than traditional bonds due to their conversion feature.
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The value of convertible bonds is influenced by the price of the underlying stock, interest rates, and the bond's credit rating.
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Convertible bonds can be advantageous for companies because they offer a lower cost of capital than issuing stock.
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One disadvantage of convertible bonds is that they may dilute the value of existing shares if the conversion feature is exercised.
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Investors should carefully consider the terms and risks of convertible bonds before investing.
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