A convertible bond's minimum value is indeed the greater of its straight bond value or its conversion value, reflecting the bondholder's option to convert the bond into a predetermined number of shares of the issuing company. This ensures that the value of the convertible bond will not fall below the value of these two components.

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A Convertible Bond

Question 336

Multiple Choice

A convertible bond:

A) Is a combination of a loan and a put option.
B) Normally has a perpetual conversion feature.
C) Has a value which is equal to its straight bond value plus it conversion value.
D) Has a minimum value which is equal to the greater of the two floor values.
E) Is worth an amount equal to the greater of the straight bond value or the conversion value plus the option to abandon value.

Correct Answer: