Bond Floor

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DEFINITION of 'Bond Floor'

1. The lowest value that convertible bonds can fall to, given the present value of the remaining future cash flows and principal repayment. The bond floor is the value at which the convertible option becomes worthless because the underlying stock price has fallen substantially below the conversion value.

2. The aspect of constant proportion portfolio insurance that ensures that the value of a given portfolio does not fall below a predefined level.

INVESTOPEDIA EXPLAINS 'Bond Floor'

1. Convertible bonds give investors the potential to profit from the rise in the price of the company's stock, if converted. Investors are protected from a downward move in the stock price because the value of the convertible bond will not fall below the value of the traditional bond component, known as the bond floor.

2. Constant proportion portfolio insurance is a mixed allocation of risky and non-risky assets, which varies depending on market conditions. An embedded bond feature ensures that the portfolio does not fall below a certain level, thus acting as a bond floor.

RELATED TERMS
  1. Bond

    A debt investment in which an investor loans money to an entity ...
  2. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  3. Conversion

    The exchange of a convertible type of asset into another type ...
  4. Conversion Price

    The price per share at which a convertible security, such as ...
  5. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
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