Why would an investor be interested in convertible securities? (What do they offer to the investor?)
A convertible bond is a bond that can be converted into a pre-determined number of shares of stock. This would happen during the life of the bond. The number of shares it can be converted to is determined by the issuer of the bond, the corporation. Convertible bonds are an attractive investment. They offer the for potential market appreciation like an equity. They also offer the conservative nature and safety of a bond. A convertible bond pays you interest and gives you the option to convert it to shares of stock.

A convertible bond has a face value of $1,000, and the conversion price is $50 per share. The stock is selling at $42 per share. The bond pays $60 per year interest and is selling in the market for $930. It matures in 15 years. Market rates are 10 percent per year. a. What is the conversion ratio?
1000/50=$20
b. What is the conversion value?
20x42=$840
c. What is the conversion premium in dollar and percentage?
930-840=$90
90/840=10.71%

What is meant by the exercise or strike price on an option?
The price at which a specific derivative contract can be exercised. Strike price is mostly used to describe stock and index options, in which strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold. The difference between the underlying security's current market price and the option's strike price represents the amount of profit per share gained upon the exercise or the sale of the option. This is true for options that are in the money; the maximum amount that can be lost is the premium paid.

What are two option strategies to take advantage of an anticipated decline in stock