Conversion Price

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DEFINITION of 'Conversion Price'

The price per share at which a convertible security, such as corporate bonds or preferred shares, can be converted into common stock.

BREAKING DOWN 'Conversion Price'

The conversion price is determined when the convertible security is issued and can be found in the bond indenture (in the case of convertible bonds) or in the security prospectus (in the case of convertible preferred shares). The conversion price is essential in determining the number of shares to be received, by computing the quotient of the principal value of the convertible security divided by the conversion price. Usually, the conversion price is set at a significant amount higher than the current price of the common stock, so as to make conversion desirable only if a company's common shares experience a significant increase in value.

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