What characterizes a convertible bond?

A convertible bond is characterized by its ability to be exchanged for a predetermined amount of the issuing company's equity, typically common stock. This feature provides investors with the potential to benefit from an increase in the company's stock price, making convertible bonds an attractive investment option for those seeking both fixed income and equity exposure.

While convertible bonds do have a set maturity period and may offer interest, the key feature that distinguishes them is their conversion option, which provides a unique blend of debt and equity investment characteristics. This dual nature appeals to investors who are looking for the safety of bonds with the growth potential of equities.