How does a convertible bond work?

Question

I know they can be converted to common stock, but how many shares, and does the bondholder pay anything??

Answer 1

When a company issues a convertible bond they usually explain the terms of the bond. Meaning the time it takes to hold the bond until it converts. They also explain the number of shares of common stock one may receive at the conversion date.

Share conversion share amounts may be also determined by the market share price of the common stock @ the conversion date.

Answer 2

Check out this excellent article at Investopedia:

http://www.investopedia.com/articles/01/052301.asp

Hope this helps!