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Simple English definitions for legal terms
conversion price
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A quick definition of conversion price:
Conversion price: The price at which a special type of investment can be turned into regular shares of a company. It's like trading in a toy for a different toy, but instead of toys, it's shares of a company. The conversion price is agreed upon in advance and is the price that the investor will pay to make the exchange.
A more thorough explanation:
Definition: Conversion price is the price per share at which a convertible security can be converted into shares of common stock, as specified in the contract.
Example: Company A issues convertible bonds with a face value of $1,000 each. The conversion price is $50 per share. This means that each bond can be converted into 20 shares of common stock ($1,000 ÷ $50 = 20).
Explanation: The conversion price is the price at which the bondholder can convert their bond into shares of common stock. In this example, if the market price of the common stock is higher than $50 per share, the bondholder can convert their bond into shares and sell them for a profit. If the market price is lower than $50 per share, the bondholder may choose to hold onto the bond instead of converting it.