Conversion price

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Conversion price

Applies mainly to convertible securities. Dollar value at which convertible bonds, debentures, or preferred stock can be converted into common stock, as specified when the convertible is issued.

Conversion Price

In a convertible security, the price at which the owner is allowed to buy an equal number of common shares in exchange for trading in the convertible security. This price is set at the sale of the convertible security. For example, a company may buy an issue of convertible bonds (a low-risk investment) from another company with the agreement that if the company's stock increases greatly in value, the first company may trade its bonds for the right to a certain number of the company's stocks at a set, low price. This price is the conversion price.

conversion price

The price per share at which common stock will be exchanged for a convertible security. The principal amount of a convertible security divided by the conversion price equals the number of shares that will be received upon exchange. The conversion price is usually adjusted downward for events such as stock splits and dividends. See also adjustment in conversion terms.
Case Study On April 2, 2002, GenCorp, an aerospace, defense, chemical, and automotive products manufacturer, announced it had privately sold $125 million principal amount of five-year subordinated notes that were convertible into shares of the firm's common stock. The notes carried a 5.75% coupon and were sold at their $1,000 face amount. The notes had a conversion price of $18.42, meaning each note could be converted into 54.2888 shares of stock. The number of shares per note is determined by dividing the $1,000 par value by the conversion price. The conversion price of $18.42 represented a 27% premium over the common stock that had closed the prior day on the New York Stock Exchange at a price of $14.50. The conversion price is a key element in valuing a convertible security. The lower the conversion price compared to the market price of the stock, the more valuable the conversion feature. A lower conversion price on the GenCorp issue would have allowed the firm to sell the notes with a lower interest coupon. It would also result in additional shares being issued when the notes were eventually submitted for conversion.

Conversion price.

A conversion price is the predetermined price, set at the time of issue, at which you can exchange a convertible bond or other convertible security for common stock.

The number of shares that you'll receive at conversion is calculated by dividing the face value of the security by the conversion price. However, that number changes if the stock has split or has paid dividends.

References in periodicals archive ?
International Resource News-26 February 2010-Suzlon Energy's board approves reduction of conversion prices for convertible bonds(C)2010 ENPublishing -
India-based Suzlon Energy Limited (Suzlon Energy) (BSE: 532667) has announced that its board has approved the reduction of conversion prices for its overseas convertible bonds.
"There's uranium prices and then there's conversion prices," Krahn explains.
PIPEs have been infamous for something known as a "death spiral," which is essentially the dilution of the company's stock price as a result of the issuer failing to set fixed conversion prices on the convertible securities in advance, instead of at the time of conversion.
Terms are also quite flexible, and can be written to favor either the issuer or buyer; conversion price, dividend, redemption, covenants and protective restrictions, and warrants are all fair game in negotiations.
But since the collapse of the bubble economy, stock prices have fallen short of conversion prices for many issues.
Approximately $117 million in principal amount of the debentures has been converted into equity at a conversion prices of $40.12 per share of common stock, while the remaining $33 million of debentures were redeemed for cash.