Calculate a convertible bond’s conversion ratio from par value and conversion price, then find conversion value, parity price and premium from current prices.
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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
Some securities use fixed conversion terms, subject to contractual adjustments; others use variable terms linked to market prices. Use the current ratio or conversion price from the actual contract and check conversion restrictions.
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 | Market price is below the calculated share value. Eligibility, execution, fees, interest and other terms may prevent a realizable profit. |
| 0% to ~5% | Market price is close to calculated share value. This percentage alone does not determine price behavior. |
| 5% to 25% | Market price is 5% to 25% above calculated share value. This descriptive band is not a valuation or safety rule. |
| Above 25% | Market price is more than 25% above calculated share value. This alone does not establish moneyness or whether a security is distressed. |
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. This is market parity before costs and interest; it is not a forecast or recommendation.
FAQ
Does the conversion ratio change over time? It depends on the contract. A fixed ratio may have anti-dilution adjustments; variable conversion terms can depend on market prices.
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, and also reflects credit risk, interest, restrictions and other terms. A premium does not guarantee protection.
