What is meant by a convertible’s floor value?

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What is meant by a convertible’s floor value?

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What is meant by a convertible’s floor value?

Explanation & AnswerSolution by a verified expert

Explanation

The straight-bond value is the present value of the principal and interest payments. A convertible bond cannot fall below its inherent value.
The conversion value is the amount that a convertible holder will receive upon conversion of the security; no holder will sell his convertible below this value.

Verified Answer

A convertible's price cannot fall below the floor value, which is the straight-bond value or conversion value (whichever is higher).

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