Convertible Bonds

Convertible bonds are sometimes called hybrid investments because they offer the opportunity to convert a corporate bond into shares of the company's common stock. Because of this added opportunity, issuers tend to offer a lower interest rate compared with other bonds.

Some investors find convertible bonds attractive because they typically receive a higher yield than they would receive if they invested in common stock, while retaining some of the growth opportunity that come with equity investments.

Convertibles have their own set of risks. They are usually subordinated debentures, which means that convertible bondholders are the last to receive payout if the company defaults. Most convertibles are also callable, and the issuer will likely exercise this right if the stock price begins to rise, limiting your potential profit.