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This is how i picture convertible notes to work: the company gets a loan from a investor, and pays a certain annual interest. the note also has a conversion price, and if the market price of the stock goes above that conversion price, the note can be converted to stock at that conversion price/share.

  • the company also makes no money for converting the note into new stock unlike warrants?

  • if the price of the company's stock never goes above the conversion price, the notes are not converted? and the company only pays back the money in cash?

please let me know if i'm correct or wrong

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the company also makes no money for converting the note into new stock unlike warrants?

The stock that the convertible bond is converted to is newly issued stock, so yes it is like warrants in that it dilutes existing shareholders. However, the company still does not "make money". The debt is just swapped for equity (there is no profit or change in assets)

if the price of the company's stock never goes above the conversion price, the notes are not converted? and the company only pays back the money in cash?

Correct. The holder gets the option of whether to convert or not, and if it is in their best interest to get cash rather than stock, they will very likely do so.

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