Conversion ratio
The number of shares received for each convertible bond on conversion. Face value divided by it gives the conversion price.
Where you will meet it
Conversion ratio appears in 4 learning outcomes on the CFA syllabus. A few of them:
- Set out the key characteristics of a convertible bond
“A convertible bond gives the holder the right to exchange it for a fixed number of the issuer's shares, the conversion ratio, during a conversion period.”
- Discuss relative value hedge fund strategies: their investment features, how they are put into practice and the role they play in a portfolio
“The number of shares to short is N = delta × conversion ratio × number of bonds, and it changes as delta does.”
- 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.”
- Explain how to value a convertible bond within an arbitrage-free framework
“A plain convertible is worth its straight value plus a call option on the shares covered by the conversion ratio.”
See also
Practise it
Practise conversion ratio until it is automatic: questions that explain every wrong option.
Take the free diagnostic →