Definition of "Convertible Bond"

A type of bond that has an option which can be exercised by the owner of the bond to exchange the bond for an equity security (common or preferred stock) of the issuer. The bond will state the times and number of shares that the bond may be converted into.

A bond that may be exchanged for the common stock of the same company. If the bondholder wishes to convert the bond, it must be done according to the terms of the indenture.