Bonds that can be traded in for stock are known as:

Bonds that can be traded in for stock are known as:

• A. Convertible
• B. Cumulative
• C. Preferred
• D. Callable

Answer: (A)

Convertible bonds have an embedded option that lets the holder exchange each bond for a specified number of shares of the issuer’s stock. This conversion feature creates upside potential if the stock performs well, while still paying interest until conversion. That conversion ability is what makes the bond tradable for stock. Other terms describe different features: cumulative relates to unpaid dividends on preferred stock; preferred refers to a class of stock with dividend priority; callable means the issuer can redeem the bond before maturity. The key idea is the conversion option, which links the bond to stock.

Convertible bonds have an embedded option that lets the holder exchange each bond for a specified number of shares of the issuer’s stock. This conversion feature creates upside potential if the stock performs well, while still paying interest until conversion. That conversion ability is what makes the bond tradable for stock. Other terms describe different features: cumulative relates to unpaid dividends on preferred stock; preferred refers to a class of stock with dividend priority; callable means the issuer can redeem the bond before maturity. The key idea is the conversion option, which links the bond to stock.