(a) Convertible Bond — A bond that gives the investor the option to convert it into equity shares at a fixed conversion price is called a Convertible Bond.
A convertible bond combines features of both debt and equity. The key phrase to remember is "option to convert into equity at a fixed conversion price," which uniquely identifies a convertible bond. The other options — Zero Coupon Bond (no periodic interest), Treasury Bills (short-term government instruments), and Commercial Paper (short-term corporate debt) — do not carry any conversion feature. Examiners expect you to directly identify the correct term.