Convertible bonds are corporate bonds which can be converted by the holder into a specified number of shares of common stock of the issuing company at a later date. The bonds allow flexible financing options to companies. They offer the investors hybrid security - as they have the features of a bond and also provide the opportunity of owning a stock. The bond’s conversion ratio determines how many shares of stock one can get by converting one bond. For instance, a conversion rate of 5:1 means that a single bond could be converted to five shares of common stock. Convertible bonds originated in the mid-19th century to counter market cornering.
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