Definition of convertible bond

A bond that is convertible into a specified number of shares of the issuing company at a stated conversion price. The conversion price is normally fixed at a premium (the conversion premium) to the market price of the shares. The conversion value is how much the convertible bond is worth in terms of the shares it will be converted into. The conversion ratio specifies the number of shares that will be received per convertible bond. Preferred shares can also be convertible into common stock (convertible adjustable preferred stock or CAPS). Convertible securities are sometimes just called convertibles.