For the most downside protection, an investor should search for convertibles trading below par value near their floor value.

Question

Quizplus · Accepted Answer

Convertibles trading below par value near their floor value provide downside protection because the bond floor acts as a price floor and limits the potential for the convertible to decline in value. Additionally, the ability to convert the bond into equity provides upside potential if the underlying stock performs well.

For the Most Downside Protection, an Investor Should Search for Convertibles