Straight value

The value of a convertible bond as if it had no conversion option, from discounting its coupons and principal. It acts as a bond floor under the price while the issuer's credit holds.

Where you will meet it

Straight value appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Work out the parts that make up a convertible bond's value and explain what they mean
  CFA Level II · Fixed Income

  “A convertible's minimum value is the higher of its conversion value and its straight value, the value of the same bond without the conversion option.”

• Explain how to value a convertible bond within an arbitrage-free framework
  CFA Level II · Fixed Income

  “A plain convertible is worth its straight value plus a call option on the shares covered by the conversion ratio.”

• Weigh the risk and return profile of a convertible bond against the profiles of a straight bond and the underlying common shares
  CFA Level II · Fixed Income

  “When the share price is far below the conversion price, the convertible is busted: it trades near its straight value and behaves like a bond, driven by rates and credit.”

See also

Convertible bond

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with S · Glossary