The price per share basis which is used to calculate the number of shares of common stock the holder of a convertible security, such as bonds or preferred stocks, will receive when a conversion option is exercised. The conversion price is stipulated in the bond indenture or the prospectus, depending on the type of the security. The conversion price is the price paid for the shares when conversion occurs:
Conversion price = par value of bond/ conversion ratio
For example, if the par value of a convertible bond is $100, and the number of shares received in return for the bond is 10, then:
Conversion price = 100/ 10 = $10
