Some corporations issue convertible bonds that give you the option — but not the obligation — to convert your investment
principal
into company stock. The conversion terms are set when the bond is issued, including the date, price, and amount of stock into which the bond can be converted.
Because of this flexibility, convertibles pay a lower interest rate than other bonds the company offers. But they are less sensitive to interest rate changes than most
conventional bonds. As a result, their prices tend to be less volatile than other company bonds, as well as less volatile than the company's stock. If you would consider owning the company's stock, but you're reluctant to buy it outright, you might want to look into convertible bonds.
Alexandra Lebenthal, President and Chief
Executive Officer of
Alexandra &
James, Inc.
Alexandra Lebenthal, President and Chief