The market conversion price is the price at which a convertible security can be converted into common stock. This price is typically determined by the market value of the underlying common stock at the time of conversion.
For example, let's say a company has a convertible bond with a $1,000 face value and a 5% coupon rate. The market conversion price of this bond is $20 per share, which means that each bond can be converted into 50 shares of common stock.
If the market value of the underlying common stock increases to $30 per share, the bondholder will be able to convert their bond into 1.67 shares of common stock (50 shares / $30 per share). This represents a 67% increase in the number of shares held, which can lead to a significant increase in the value of the investment.
Conversely, if the market value of the underlying common stock decreases to $10 per share, the bondholder will only be able to convert their bond into 2.5 shares of common stock (50 shares / $10 per share). This represents a 50% decrease in the number of shares held, which can lead to a significant decrease in the value of the investment.
What is a conversion policy?
A conversion policy is a strategy that some companies use in order to minimize the dilutive effects of convertible securities. In a conversion policy, the company commits to converting all or a portion of its convertible securities into common stock at a set conversion price. This conversion price is usually set at a level that is below the current market price of the company's stock. By setting the conversion price below the current market price, the company ensures that the holders of the convertible securities will not be able to convert their securities into common stock unless the stock price rises. This policy effectively limits the supply of new shares that would be created if the securities were converted, and therefore limits the dilutive effect on the existing shareholders.
What is a conversion issue? A conversion issue is a type of investment that allows the holder to convert their investment into another form, typically shares of stock. For example, a convertible bond can be converted into shares of the issuing company's stock. Convertible securities are often used as a way to raise capital, since they offer investors the potential for upside if the underlying stock price increases. However, they also carry more risk than non-convertible securities, since the value of the investment is dependent on the stock price.
What is a conversion option? A conversion option is a type of option that allows the holder to convert a security into another security at a predetermined price. For example, a convertible bondholder may have the option to convert their bond into a certain number of shares of the issuer's stock. What are the elements of conversion cost? The elements of conversion cost include direct labor, factory overhead, and any other costs associated with converting raw materials into finished goods.
Why it is called conversion cost? Conversion cost is the cost associated with converting raw materials into finished goods. This includes the cost of labor and overhead.
Conversion costs are a key factor in determining the overall cost of goods sold (COGS). In general, the lower the conversion costs, the lower the COGS.
Conversion costs are often expressed as a percentage of the selling price of the finished goods. For example, if it costs $100 to convert raw materials into a finished product that sells for $200, the conversion cost is 50% ($100/$200).
The term "conversion cost" is used in both manufacturing and service industries. In manufacturing, conversion costs are often referred to as "direct labor and overhead," while in service industries they are often referred to as "direct labor and indirect expenses."