Enter the total value of the convertible security and the conversion ratio into the calculator to determine the parity price.
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Conversion Parity Price Formula
The following formula is used to calculate a conversion parity price.
CPP = VCS / CR
- Where CPP is the conversion parity price ($)
- VCS is the value of the convertible security ($)
- CR is the conversion ratio
To calculate the conversion parity price, divide the value of the convertible security by the conversion ratio.
What is a conversion parity price?
A conversion parity price, also known more simply as just parity, is the break-even price on convertible securities. It’s also considered the effective price paid by an investor on convertible securities like bonds or options.
How to calculate conversion parity price?
The following example outlines how to calculate a conversion parity price.
First, determine the value of the convertible security. In this example, the security is valued at $10,000.00.
Next, determine the number of shares that would be issued if the security (option) was exercised. This is also known as the conversion ratio. For this example, the number of shares that would be issued is 200.
Finally, calculate the parity price (i.e. the minimum price an investor needs the stock to be at to make a profit).
CPP = VCS / CR
CPP = $10,000.00 / 200
CPP = $50.00 per share