What does a convertible bond allow an investor to do?

A convertible bond is a type of fixed-income security that provides the investor with the option to convert the bond into a predetermined number of shares of the issuing company's common stock. This feature allows investors to benefit from the potential appreciation of the company's stock while still receiving fixed interest payments during the life of the bond.

Converting a bond into common stock can be particularly attractive if the company’s share price increases significantly, as it allows the investor to participate in the company's growth. This characteristic makes convertible bonds a hybrid investment, combining features of both debt and equity.

While receiving fixed interest payments is indeed a feature of convertible bonds, it's not the defining characteristic that distinguishes them from other bond types. Although some bonds might also allow for conversion into preferred shares, this is not typical for convertible bonds, which specifically refer to common stock conversions. The option to sell the bond back to the issuer at any time is generally not a feature of convertible bonds; this characteristic is more common in callable bonds.