Holder of corporate convertible bonds has the right to convert the bond into common stock (only corporatations sell convertible bonds)

The convertible bond interest rate will always be lower than the market interest rate in order to equalize the kicker

The majority of convertible bonds are from the smaller companies.  If you believe the small cap effect you might be interested.

Most convertible bonds qualify as junk bonds (DDD grade rating)

Most convertible bonds have a call feature (only reason to force the conversion)

Arbitrage – assumes that bonds will sell at conversion value – because advantages of arbitrage – this won’t happen

When interest rates are high and stock prices are low buy convertible bonds

Convertible bond basic formulas:

Convertible bond recapture = premium / bond yield – dividend for stock

Convertible bond conversion price = current bond price / shares per bond conversion

Convertible bond conversion premium = marginal price of convertible bond – cash value / cash value

Convertible bond conversion ratio = face value / conversion price

Convertible bond conversion value = conversion ration X stock price

Convertible bond downside risk = marginal price – pure bond value / marginal price

Convertible bond potential gain = pure bond value – current bond price / current bond price

Convertible bond pay back period = (current price – stock price) (current ratio) / coupon – dividend (convertible bond price / convertible stock price)