Introduction to Convertible Bonds Terminology

This video provides an overview of convertible bonds and introduces some of the terminology of convertible bonds. A convertible bond can be thought of as a combination of the underlying bond and a call option in that it provides the investor with a bond AND the right, but not the obligation to exchange that bond for shares of the underlying stock. If the stock appreciates in value significantly, the bondholder can convert. However, if the stock stays flat or falls, the bondholder still gets the protection of the bond itself. In this video, we will introduce terms such as conversion price, conversion ratio, conversion value, pure bond value, conversion premium, and downside risk.