Bond Floor

AAA

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. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  4. Present Value - PV

    The current worth of a future sum of money or stream of cash ...
  5. Conversion Price

    The price per share at which a convertible security, such as ...
  6. Underlying

    1. In derivatives, the security that must be delivered when a ...
RELATED FAQS
  1. What is the difference between compounding interest and simple interest?

    Interest is the cost of borrowing money, where the borrower pays a fee to the owner for using the owner's money. The interest ... Read Full Answer >>
  2. What is the relationship between modified duration and interest rates?

    Modified duration is a formula that measures the value of a bond in relation to changes in interest rates. Modified duration ... Read Full Answer >>
  3. How does inflation affect a company's short-term investments?

    Inflation marginally erodes a company's short-term investments. Short-term investments are typically ultra-safe liquid assets, ... Read Full Answer >>
  4. Which asset classes are the most risky?

    Equities is the riskiest class of assets. Dividends aside, they offer no guarantees, and investors' money is subject to the ... Read Full Answer >>
  5. How do you find accrued interest on a bond?

    A bond is a debt instrument issued by a company, government agency or municipality to raise money. Interest payments are ... Read Full Answer >>
  6. What are the main disadvantages of fixed income securities?

    Fixed-income securities attract investors because they provide guaranteed returns in the form of fixed, regular cash payments. ... Read Full Answer >>
Related Articles
  1. Investing

    The Advantages Of Bonds

    Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment.
  2. Mutual Funds & ETFs

    The Bond Market: A Look Back

    Find out how fixed-income investments evolved in the past century and what it means today.
  3. Bonds & Fixed Income

    Convertible Bonds: An Introduction

    Find out about the nuts and bolts, pros and cons of investing in bonds.
  4. Retirement

    Bond Basics Tutorial

    Investing in bonds - What are they, and do they belong in your portfolio?
  5. Mutual Funds & ETFs

    Is the PowerShares (PFEM) ETF a Good Bet Now?

    What you need to know if you are considering trading PowerShares Fundamental Emerging Markets Local Debt ETF.
  6. Mutual Funds & ETFs

    Anatomy of Emerging Markets Debt ETF (EMLC)

    This emerging market bond ETF offers a high yield, but there are dangers. Find out why.
  7. Trading Strategies

    How to Pick the Best Dividend Stocks

    Dividend stocks can make you rich, but you have to be patient.
  8. Trading Strategies

    4 Quality Dividend Stocks You Need to Consider

    Looking for quality stocks that also pay dividends? Consider these four.
  9. Trading Strategies

    Are These the Top Monthly Dividend Stocks?

    Interested in monthly dividends? Here are two stocks to watch.
  10. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.

You May Also Like

Hot Definitions
  1. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  2. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  3. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  4. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
  5. Wash Trading

    The process of buying shares of a company through one broker while selling shares through a different broker. Wash trading ...
Trading Center