Conversion Price

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Description of Conversion Price. Explanation.

 

Definition Conversion Price. Description.


The Conversion Price is the price per share at which a convertible bond or convertible stock is eligible to be converted into common stock. The conversion price is specified when the security is issued and is normally stated in the bond indenture (in the case of convertible bonds) or in the security prospectus of the convertible preferred stock.


The conversion price is useful to determine the number of shares to be received, by computing the quotient of the principal value (par value) of the convertible security divided by the number of shares into which it may be exchanged. Normally, the conversion price is set at a higher amount than the current price of the common stock. Therefore conversion is desirable only if a company's common shares increase in value significantly.


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Compare with: Convertible Preferred Stock  |  Convertible Bond  |  Conversion Ratio

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