Why do convertible bonds in the international bond market se

Why do convertible bonds in the international bond market sell at a premium compared to their plain vanilla counterparts?

Solution

Convertible bonds provide fixed coupon just like plain vanilla bond and also an option of converting the bond into shares if the share prices appreciate. This benefits both the buyer and issuer of the bond
Convertible bonds are linked to the stock or security’s performance with which they are linked. If the company issuing the convertible bond is performing very well in the market the prices of such bonds are higher than the plain vanilla bond. Since these bonds provide fixed coupon and an upward potential of high returns when the share market rises hence they are sold at premium in the international market.

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