Explanation: In an arbitrage-free framework, the minimum value of a convertible bond must be the greater of:

1. Its value as a straight bond (bond floor)
2. Its conversion value (stock value)

This is because:

• If the convertible bond trades below its straight bond value, investors could buy the convertible and sell the straight bond for risk-free profit
• If the convertible bond trades below its conversion value, investors could buy the convertible, convert to stock, and sell the stock for risk-free profit

Therefore, the minimum value is the higher of the straight bond value and conversion value to prevent arbitrage opportunities.