Calculate convertible bond conversion ratio, conversion price, conversion value, and premium from par value, stock price, and market price.
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Conversion Ratio Formula
Conversion Ratio = Par Value / Conversion Price
- Conversion Ratio — the number of shares received when one bond or note is converted.
- Par Value — the face value of the convertible security, usually 1,000.
- Conversion Price — the per-share price at which the bond converts into stock.
Two related formulas the calculator also uses:
Conversion Price = Par Value / Conversion Ratio
Conversion Value = Conversion Ratio * Current Stock Price
Conversion Premium % = (Market Price - Conversion Value) / Conversion Value * 100
The ratio is fixed by the indenture at issuance. It only changes if the deal includes anti-dilution adjustments (stock splits, special dividends, or similar events).
Reference Tables
Common conversion ratios you will see when par equals 1,000:
| Conversion Price | Conversion Ratio | Parity Stock Price (par = market) |
|---|---|---|
| $10.00 | 100.00 | $10.00 |
| $20.00 | 50.00 | $20.00 |
| $25.00 | 40.00 | $25.00 |
| $40.00 | 25.00 | $40.00 |
| $50.00 | 20.00 | $50.00 |
| $100.00 | 10.00 | $100.00 |
How to read the conversion premium output:
| Premium | What It Means |
|---|---|
| Negative | Bond trades below the value of its shares. Converting now would capture a gain, ignoring accrued interest. |
| 0% to ~5% | Trades near parity. Behaves like the underlying stock. |
| 5% to 25% | Typical range for in-the-money convertibles. Investors pay extra for downside protection from the bond floor. |
| Above 25% | Out-of-the-money or "busted" convertible. Prices off yield, not equity. |
Example
A company issues a $1,000 par convertible bond with a $25 conversion price.
- Conversion ratio = 1,000 / 25 = 40 shares per bond.
- If the stock trades at $24, conversion value = 40 × $24 = $960.
- If the bond trades at $1,050, premium = (1,050 − 960) / 960 = 9.38%.
- Break-even stock price at the current bond price = 1,050 / 40 = $26.25. The stock must rise above this for conversion to beat holding the bond at today's market price.
FAQ
Does the conversion ratio change over time? Only through contractual anti-dilution adjustments. Routine market moves do not affect it.
Why is par usually 1,000? Corporate bonds in the U.S. are issued in $1,000 denominations by convention. Use the actual face value if your security differs.
What is the difference between conversion value and market price? Conversion value is what the underlying shares are worth right now. Market price is what the bond actually trades for, which usually includes a premium for the bond's coupon and downside protection.
