The second part is the option value of the conversion feature. In our example, if the stock is at $50, the bond can be exchanged for twenty shares of stock, worth $1,000, which the bond is worth anyhow when it matures so there is no benefit from the conversion feature. However, if the stock were to rise at any point to $75, twenty shares of stock would be worth $1,500. The bond, which can be exchanged immediately for this amount of stock, should trade in the market then for at least that amount.
