A convertible bond's most important features are its investment value and its conversion value.
The investment value of a convertible bond is defined as its value if it were not convertible into any other security. As an interest paying security with its value at maturity guaranteed by the issuing company, the investment value is equal to its value as a normal corporate bond. This value is also known as the debt floor.
A convertible bond can be converted into a fixed number of shares of common stock upon tender. The current value of the stock received is considered the conversion value of the bond. The plotted line of conversion values, beginning with a stock price of zero and on up, can be considered the equity floor.
Because a convertible bond has these two features, the option curve formed is very similar to that of a warrant, where the value of the debt floor of a convertible bond is compared to the exercise price of a warrant and the conversion value of a convertible bond would be comparable to the number of shares to be received upon the exercise of a warrant.