Conversion Parity Price

DEFINITION of 'Conversion Parity Price'

The price paid for a share of stock purchased by exercising the option on a convertible security. The conversion parity price is the effective price paid by the investor, and is calculated by dividing the market price of the convertible security by the conversion ratio, which is the number of shares a convertible security can be converted into.

BREAKING DOWN 'Conversion Parity Price'

For example, a convertible bond with a par value of $1,000 and can be exchanged for 20 shares of common stock. The conversion parity price would be $50 ($1,000/20 shares). Investors can limit risk by purchasing a convertible security when the conversion parity price is close to the market price for the common stock, and the price of the common stock is expected to rise in the future.

RELATED TERMS
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  3. Parity Price

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RELATED FAQS
  1. What is a 'busted' convertible bond?

    Learn about busted convertible bonds; these are hybrid securities with conversion prices significantly higher than the market ... Read Answer >>
  2. What is a Chinese hedge?

    A Chinese Hedge is a form of arbitrage by which an investor shorts a convertible bond and buys the underlying common stock. ... Read Answer >>
  3. Where does the stock come from when convertible bonds are converted to stock?

    First, let's define convertible bonds. A unique combination of debt and equity, they provide investors with the chance to ... Read Answer >>
  4. What is the difference between convertible and reverse convertible bonds?

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  5. Why would a corporation issue convertible bonds?

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    Convertible bonds usually have no voting rights until they are converted. Even after conversion, they may not be granted ... Read Answer >>
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