Final answer:
A convertible bond can be converted into the common stock of the company that issued the bond, combining equity potential with fixed income characteristics of standard bonds.
Step-by-step explanation:
A convertible bond is a type of debt instrument that offers the bondholder the option to convert the bond into a predetermined amount of the company's equity, usually in the form of common stock. This means that the bondholder can, at certain times during the bond's life, opt to exchange their bond for shares in the company issuing the bond rather than receiving back their initial investment plus interest. The conversion feature adds an equity component to the otherwise debt nature of the bond, providing potential for capital appreciation should the company's share price increase.
Answer (b): Convertible bonds can typically be converted into the common stock of the company that issued the bond, not another company's stock or preferred stock. This conversion option provides bondholders with the potential upside of equity investments while also offering the fixed income characteristics of a bond.