Imagine that as an investor you are debating the following purchases: A $2,000 convertible bond with a 5% interest rate that matures in 10 years with a convertible ratio of 100 for each convertible bond. A callable bond with a face value of $10,000 with a callable price of 105

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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  • Imagine that as an investor you are debating the following purchases:
    • A $2,000 convertible bond with a 5% interest rate that matures in 10 years with a convertible ratio of 100 for each convertible bond.
    • A callable bond with a face value of $10,000 with a callable price of 105
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Convertible bond

An interest-bearing fixed-income company's financial asset known as a convertible bond can be converted into a certain number of shares of common stock or equity. It is normally up to the bondholder's choose whether to convert the bond into stock at specific points during the bond's term. A convertible bond's price is particularly sensitive to changes in interest rates, the value of the underlying stock, and the issuer's credit rating because it is a hybrid product. A convertible bond, a callable bond.

Here, we'll discuss convertible and callable bonds.

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