A convertible bond is a type of debt security that allows the bondholder to convert the bond into a predetermined number of shares of the issuing company's stock. This feature provides investors with the potential for capital appreciation if the company's stock performs well, while still offering the fixed income benefits of a traditional bond. These bonds typically have lower interest rates compared to non-convertible bonds because of the added value of the conversion option. Investors often consider convertible bonds as a way to balance risk and reward, especially in volatile markets where stock prices may fluctuate significantly.