A convertible bond should never be worth less than its straight bond value.

Question

Quizplus · Accepted Answer

A convertible bond combines the features of a conventional bond with the option to convert the bond into a specified number of shares of the issuing company, usually at the discretion of the bondholder. Its value is therefore at least equal to its straight bond value (the value it would have without the conversion option) because the conversion option provides additional value. If the stock price increases significantly, the value of the conversion option increases, making the convertible bond worth more. However, if the stock performs poorly, the bond's value will not fall below its straight bond value, as the investor can choose not to convert and instead hold the bond for its fixed income returns.

A Convertible Bond Should Never Be Worth Less Than Its