What Is a Convertible Bond? How Does the Convertibility Feature

question 33

Essay

What is a convertible bond? How does the convertibility feature affect the bond's price and interest rate?

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Definitions:

Convergence

The movement of the price of a futures contract towards the spot price of the underlying asset as the delivery date approaches.

Futures Contracts

Legal agreements to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Spot Price

The current market price at which a particular asset can be bought or sold for immediate delivery.

Arbitrage Opportunities

Situations where a trader can make a profit from the price difference of a security or commodity in two different markets without risk.