Convertible BondsDefinition :

Convertible bonds give the holder the right to convert or exchange the par amount of the bond for common shares of the issuer at some fixed ratio during a particular period. The ratio determines how many shares can be converted from each bond.

Explanation:

Convertible bonds combine the features of bonds and stocks in one instrument and its price is impacted by both interest rates and share prices. Like plain-vanilla corporate bonds, convertibles ensure income for investors. But unlike bonds, their prices have the potential to rise if the company’s stock performs well. Since the convertible bond has the option to be converted into stock, the rising price of the underlying stock increases the value of the convertible security