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.

  1. Convertible Bond

    A bond that can be converted into a predetermined amount of the ...
  2. Convertible Preferred Stock

    Preferred stock that includes an option for the holder to convert ...
  3. Convertibles

    Securities, usually bonds or preferred shares, that can be converted ...
  4. Common Stock

    A security that represents ownership in a corporation. Holders ...
  5. Conversion Ratio

    The number of common shares received at the time of conversion ...
  6. U.S. Savings Bonds

    A U.S. government savings bond that offers a fixed rate of interest ...
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