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Analyzing Convertible Bonds

Michael J. Brennan, Eduardo S. Schwartz

Journal of Financial and Quantitative Analysis · 1980 · Volume 15 · Issue 4

DOI: 10.2307/2330567

Abstract

The convertible bond is a hybrid security which, while retaining most of the characteristics of straight debt, offers, in addition, the upside potential associated with theunderlying common stock. As a quid pro quo for the upside potential the convertible bond is typically subordinated to other corporate debt and carries a lower coupon rate than would an otherwise equivalent straight bond.

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