Question: How Do You Value Conversion Options?

What is the conversion price?

The conversion price is the price per share at which a convertible security, such as corporate bonds or preferred shares, can be converted into common stock.

The conversion price is set when the conversion ratio is decided for a convertible security..

What is the conversion value?

The term conversion value refers to the financial worth of the securities obtained by exchanging a convertible security for its underlying assets. … Conversion value is calculated by multiplying the common stock price by the conversion ratio.

What is a current price?

The current price is the most recent selling price of a stock, currency, commodity, or precious metal that is traded on an exchange. It is the most reliable indicator of that security’s present value.

What is cost parity?

Cost parity means matching prices. A company has achieved cost parity with another if it charges the same price for the same product or service. Cost parity frequently refers to the goal of matching prices with the market leader, which is the company that dominates the market for the same type of product or service.

What does it mean to have parity?

(Entry 1 of 2) 1 : the quality or state of being equal or equivalent Women have fought for parity with men in the workplace. 2a : equivalence of a commodity price expressed in one currency to its price expressed in another The two currencies are approaching parity for the first time in decades.

What is the difference between the conversion value and conversion premium?

Once a bond is issued, the amount by which its price exceeds the conversion price is referred to as the conversion premium. The conversion premium compares the current market against the higher of the conversion value or straight-bond value.

Can the market price be less than the conversion value?

Market Conversion Price The price one effectively pays for common stock when one exercises the conversion option of a convertible security. … In order for the exercise of the option to be worthwhile, the market conversion price must be lower than the market price of common stock.

How do you calculate parity price?

Parity price is calculated by dividing the market price of the convertible security with the conversion ratio (the number of common stock shares received upon conversion).

What happens when convertible bond matures?

If the stock price increases significantly, the investor can convert the bond to stock and either hold or sell the stock at their discretion. … On the other hand, a reversible convertible bond gives the company the right to convert the bond to equity shares or keep the bond as a fixed income investment until maturity.

What is price parity in travel?

These platforms usually include price parity clauses in their contracts with hotels. These clauses allow an OTA to contractually constrain a hotel on product price, requiring the hotel to provide the OTA with the same price as it offers to any other OTA or the price which appears on the hotel’s website.

What is the conversion ratio?

The conversion ratio is the number of common shares received at the time of conversion for each convertible security. The higher the ratio, the higher the number of common shares exchanged per convertible security.

How do you convert basic prices to prices?

The market conversion price is determined by dividing the current market price of the convertible security by the security’s conversion ratio.