Which type of bonds can be converted into common stock?

Convertible bonds are a unique type of debt instrument that grants the bondholder the right to convert their bonds into a predetermined number of shares of the company's common stock. This feature essentially links the bondholder's investment to the equity of the issuing company, allowing them to benefit from potential increases in the company’s stock price.

When an investor chooses to convert their bonds into stock, they typically do so because they believe that the stock will appreciate in value, providing a higher return compared to holding the bond to maturity. This conversion option provides an added layer of flexibility and opportunity for investors, distinguishing convertible bonds from other types of bonds, which do not carry this conversion feature.

Secured bonds, general obligation bonds, and callable bonds do not offer this benefit. Secured bonds are backed by specific assets, whereas general obligation bonds are backed by the issuing government’s taxing power. Callable bonds can be redeemed by the issuer before the maturity date, but they do not provide conversion rights to stock. Understanding the specific characteristics of each type of bond helps clarify why convertible bonds are the appropriate choice for the question.