What does the conversion price refer to?

The conversion price is specifically defined as the price at which convertible securities, such as convertible bonds or convertible preferred stocks, can be exchanged for a predetermined number of shares of common stock. When a holder of a convertible security chooses to convert, they typically do so at the conversion price, which is established at the time the security is issued. This price is crucial because it determines how many shares the holder receives in exchange for their convertible securities and can significantly influence the attractiveness of the conversion option to the investor.

Understanding the conversion price is essential in capital markets as it helps investors assess the potential value and return on their convertible investments relative to the performance of the underlying stock. Additionally, it reflects the relationship between the issuer’s debt and equity structures and the potential dilution risks associated with conversions.