What is a convertible bond?

A convertible bond is a type of fixed-income security that can be converted into a predetermined number of the company's equity shares, typically at the discretion of the bondholder. This feature offers bondholders the potential to benefit from appreciation in the company's stock price while still receiving regular interest payments. By providing this opportunity for conversion into equity, convertible bonds often attract investors who are seeking both fixed income and potential upside if the company's equity performs well.

The other options present features that do not define a convertible bond. For example, having equity voting rights does not align with the nature of convertible bonds, which are primarily debt instruments. A floating rate bond without a top rate refers to a different category of bonds altogether, often associated with interest rate fluctuations rather than conversion to equity. Similarly, a bond secured by physical assets describes secured bonds, which provide collateral to bondholders, distinguishing them from convertible options.