1. What is Conversion Price?

Conversion Price is the price at which the convertible bond or preferred share can be converted into common stock. It represents the effective price per share that an investor pays when converting their security into common stock.

2. How Does the Calculator Work?

The calculator uses the Conversion Price formula:

Where:

• \( CP \) — Conversion Price ($ per share)
• \( PV \) — Par Value or face value of the convertible security ($)
• \( CR \) — Conversion Ratio (number of shares per security)

Explanation: The formula divides the par value of the convertible security by the conversion ratio to determine the effective price per share at conversion.

3. Importance of Conversion Price

Details: Conversion Price is crucial for investors evaluating convertible securities. It helps determine the conversion premium, assess the attractiveness of conversion, and compare different convertible investment opportunities.

4. Using the Calculator

Tips: Enter the par value in dollars and the conversion ratio as the number of shares received per security. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between conversion price and market price?
A: Conversion price is the fixed price at which conversion occurs, while market price is the current trading price of the common stock. The difference between these prices determines the conversion premium.

Q2: Can conversion price change over time?
A: Typically, conversion price is fixed at issuance, but some convertible securities may have anti-dilution provisions that adjust the conversion price under certain conditions.

Q3: What is a typical conversion ratio?
A: Conversion ratios vary widely depending on the security. Common ratios range from 10:1 to 100:1, meaning each convertible security can be converted into 10 to 100 shares of common stock.

Q4: How does conversion price affect investment decisions?
A: A lower conversion price relative to the current market price makes conversion more attractive, while a higher conversion price may make holding the convertible security more favorable.

Q5: Are there tax implications when converting?
A: Yes, converting convertible securities may trigger tax events. Investors should consult with tax professionals to understand the specific implications of conversion.