How is the conversion price of a convertible bond calculated?

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The conversion price of a convertible bond is calculated by dividing the face value of the bond by the number of shares that the bondholder will receive upon conversion. This calculation determines the price at which each share of stock can be obtained when the bond is converted into equity.

For example, if a convertible bond has a face value of $1,000 and can be converted into 50 shares of stock, the conversion price would be $1,000/50, which equals $20 per share. This means that when the bondholder decides to convert the bond into shares, they are effectively paying $20 for each share based on the bond's original face value.

This method allows investors to assess the value of converting their bonds into equity and helps in making more informed investment decisions. Understanding how to calculate the conversion price is crucial for investors in assessing the potential upside of convertible bonds, especially in relation to the company's stock performance.

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