How do you calculate a conversion price?

The conversion price is determined by dividing the par value of the convertible security by the conversion ratio. Technically, the conversion ratio can be solved for by re-arranging the formula, where the par value is divided by the conversion price.

What is a conversion price & conversion ratio?

Conceptually, the conversion price is the “minimum hurdle” that the stock price of the issuer must reach (and exceed) for the embedded conversion feature to be exercisable. Conversion Ratio → The conversion ratio specifies the number of shares in common stock collected if the embedded option is redeemed.

What is a conversion price?

Usually, the conversion price is set at a significant amount higher than the current price of the common stock to make conversion desirable only if a company's common shares experience a significant increase in value. The conversion price is set by management as part of the conversion ratio before the convertibles are issued to the public.