Why would a convertible bond increase much more in value than a bond that is not convertible?
What will be an ideal response?
Convertible bonds are debt securities that can be converted into a firm's stock at a prespecified price (conversion price).
Thus, with convertible bonds, you can get your original investment back if the firm does not do well (e.g., when the
stock price never gets above the conversion price), or you can participate in the upside if the company does well. You
would convert only if the stock were selling at a price above the conversion price.
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