conversion premium

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Conversion premium

The extent by which the conversion price of a convertible security exceeds the prevailing common stock price at the time the convertible security is issued. In general usage, the conversion premium is the amount by which the convertible security trades above its conversted value. For example, if a $1,000 par bond is trading at $1,100, it is convertible into 50 shares, and the shares are trading at $21, the converted value is 50 X 20.50 = $1,025, and the conversion premium is $75.
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Conversion Premium

The amount by which a convertible security is trading above the common stock into which it may be converted. Most convertible securities trade at a conversion premium, though it usually lessens as the common stock increases in price.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

conversion premium

The excess at which a convertible security sells above its conversion value. The conversion premium usually declines as a convertible security rises in market price. A bond trading at $1,400 and convertible into 50 shares of common stock with a current market price of $22 each sells at a conversion premium of $1,400 - (50 × $22), or $300.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
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The group said land acquisition costs (land alienation prices and land conversion premiums) could be lowered if at least 70 per cent of the land is for affordable housing.
The Cappelli acquisition will be funded through the assumption of approximately $45 million of secured debt, common operating partnership units, cash and approximately $40 million of two series of convertible preferred operating partnership units which carry dividend rates ranging from 6.25 to 7 percent and conversion premiums of 17.5 and 30 percent.
There should also be a reduction in the bureaucratic measures required and time taken for a developer to obtain approvals for a project, as well as reducing compliance costs such as development charges and land conversion premiums, he said.
Among those firms that issue convertible bonds, higher-quality firms set low conversion ratios (high conversion premiums), while lower-quality firms within this group set high conversion ratios (or low conversion premiums).
Kim (1990) develops a model of convertible debt financing in which the conversion ratio (conversion premium) serves as a credible signal of firm quality.
This is not statistically different from the average conversion premium of 19.5% set by the group of firms whose convertible bonds do infuse equity into the capital structure.
The conversion premium is the difference between conversion price and the stock price on the day prior to the offer announcement date divided by the stock price.
5 The importance of the conversion premium (conversion ratio) is based on Kim (1990).
We now develop the implications of the asymmetric information hypothesis for subsamples of firms issuing putable convertibles based on conversion premium (i.e., the extent to which the stock price must rise for the conversion option to be in the money).
Finally, firm insiders can signal their type (private information) using a combination of two signals: 1) the choice of security to issue and 2) the conversion premium (if they choose to issue a convertible, is it putable or ordinary).
Thus, our extension of the Stein (1992) model implies that firm insiders with more favorable private information will issue putable convertibles with a high conversion premium. This has three testable predictions for subsamples of firms issuing putable convertibles.
Next, we test the asymmetric information hypothesis H7, which predicts that the announcement effects of putable convertible issues with a high conversion premium relative to a matched set of ordinary convertible issues will be more favorable than those of putable convertible issues with a low conversion premium relative to a matched set of ordinary convertible issues.