What is one advantage for investors in convertible bonds?

One significant advantage of investing in convertible bonds is the ability to take advantage of stock price appreciation. Convertible bonds are a hybrid security that typically offers the characteristics of both debt and equity. When investors own a convertible bond, they have the option to convert their bonds into a predetermined number of shares of the issuing company’s common stock. If the stock price rises significantly, the investor can convert the bond into equity and benefit from the appreciation, effectively allowing them to participate in the upside potential of the company's growth while still having the downside protection that a bond offers. This feature makes convertible bonds an attractive option for investors who want exposure to a company's equity without immediately committing capital to stocks.

In contrast, guaranteed principal repayment is not a feature inherent to convertible bonds; thus, it does not fully encapsulate their value compared to direct equity or traditional bonds. Rapid value loss due to underperformance of the stock contradicts the attractive nature of convertibles, as they are designed to mitigate such risks. Lastly, fixed returns irrespective of stock performance do not apply here, as the appeal of convertibles lies in their potential for equity-like gains, along with the bond’s fixed income characteristics.