Adjustment in Conversion Terms

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DEFINITION of 'Adjustment in Conversion Terms'

A term used to describe the adjustment made to a convertible securities' conversion factor when the exchangeable stock underlying the convertible undergoes a split.

INVESTOPEDIA EXPLAINS 'Adjustment in Conversion Terms'

In some convertibles, an adjustment in conversion terms is a scheduled event. Otherwise, these adjustments are made in order to ensure that the holder of the convertible remains unaffected by any related changes.

For example, if a convertible security CBC has an exchange privilege of 1 common for $50, and the common share of CBC splits 2 for 1, then the exchange ratio will be adjusted to 1 common for $25.

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