What is a key characteristic of convertible bonds?

A key characteristic of convertible bonds is that the bond indenture, which is the legal document that outlines the terms of the bond, provides specific details about the conditions under which the bondholder can convert the bond into a predetermined number of shares of the issuer's stock. This feature allows investors to benefit from potential equity appreciation while still having the security of a fixed-income investment. The terms typically include conversion ratios, the time period during which conversion is allowed, and any adjustments that may reflect stock splits or dividends.

The other options do not accurately describe the fundamental attributes of convertible bonds. While the cost of borrowing can vary based on many factors, convertible bonds generally have lower fixed costs than traditional bonds due to their conversion feature. Additionally, convertible bonds can be callable, meaning that the issuer has the right to redeem the bonds before maturity under certain conditions. Lastly, convertible bonds are indeed available to individual investors, allowing a broader market participation compared to some other securities.