What is a Conversion Price? Meaning.
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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