CONVERSION PARITY PRICE

The price paid for a share of stock purchased by exercising the option on a convertible security. The conversion parity price is the effective price paid by the investor, and is calculated by dividing the market price of the convertible security by the conversion ratio, which is the number of shares a convertible security can be converted into.

For example, a convertible bond with a par value of $1,000 and can be exchanged for 20 shares of common stock. The conversion parity price would be $50 ($1,000/20 shares). Investors can limit risk by purchasing a convertible security when the conversion parity price is close to the market price for the common stock, and the price of the common stock is expected to rise in the future.