Conversion value
The value of the shares a convertible bond can be exchanged for: the conversion ratio times the share price. A convertible is worth at least the higher of this and its straight value.
Where you will meet it
Conversion value appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Set out the key characteristics of a convertible bond
“Many convertibles are callable, often after a period of call protection, and issuers typically call once conversion value is well above the call price, to force holders to convert.”
- Work out the parts that make up a convertible bond's value and explain what they mean
“Conversion value is the conversion ratio multiplied by the share price.”
- Weigh the risk and return profile of a convertible bond against the profiles of a straight bond and the underlying common shares
“On price alone it usually lags the shares on the upside, because its premium to conversion value shrinks as the shares rise.”
See also
Conversion ratio · Convertible bond · Straight value
Practise it
Practise conversion value until it is automatic: questions that explain every wrong option.
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