Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

A convertible bond is specifically designed to provide the bondholder with the option to convert the bond into a specified number of shares of the issuing company's stock. This feature allows investors to benefit from potential increases in the company's stock price while still receiving regular interest payments from the bond until conversion. The attractiveness of convertible bonds lies in their hybrid nature, allowing investors to partake in equity-like upside while also having the safety and fixed income characteristics of a traditional bond.

The other options do not accurately define a convertible bond. For instance, while some bonds might pay interest in different forms, they do not typically categorize as convertible; convertible bonds explicitly offer equity conversion rights. The notion that a bond must have a maturity longer than 30 years does not apply, as convertible bonds can have various maturity lengths. Similarly, a bond issued by a foreign government does not align with the concept of convertibility, as this term refers primarily to the conversion into stock, not issuer nationality.