About the Convertible Bond Calculator
A convertible bond pays a coupon like an ordinary bond but can be swapped for a fixed number of the issuer’s shares. This convertible bond calculator turns the terms on the prospectus — face value and either the conversion ratio or the conversion price — and today’s market prices into the numbers convertible investors actually compare: conversion value (what the shares are worth if you convert now), the conversion premium you pay over that value, the market conversion price per share, and the bond floor.
It is useful for investors weighing a convertible against buying the stock outright, for students working through fixed-income or CFA problems, and for anyone reading a new-issue term sheet. Enter the straight bond value (what the bond would be worth without the conversion option, from a bond pricing model or comparable yields) to see how much of the price is downside protection and how much is option value.
The premium payback (break-even) period compares the extra cost of the convertible over its conversion value with the extra income it earns: coupon income minus the dividends you would have received on the conversion shares. It ignores call features, accrued interest and the time value of money, so treat it as a quick screening figure rather than a full valuation.
With the default inputs, the conversion value (parity) is $840.00. Change any value above to recalculate instantly.
How to use the convertible bond calculator
- 1Enter the face value and today’s market price of one bond.
- 2Choose whether the prospectus quotes a conversion ratio or a conversion price, and enter it.
- 3Enter the current share price and annual dividend per share.
- 4Add the coupon rate and, if you have it, the straight bond value.
- 5Read the conversion value and premium, then check the payback period and minimum value.
Formula and method
Conversion value (also called parity) is the number of shares you receive on conversion multiplied by the current share price. If the terms are given as a conversion price, the conversion ratio is the face value divided by that price. The conversion premium is how much the bond’s market price exceeds its conversion value, expressed in currency and as a percentage of conversion value; the market conversion price is the bond price divided by the ratio.
A convertible should not trade below the higher of its conversion value and its straight bond value, so that higher figure is shown as the minimum value. The premium payback period divides the conversion premium by the annual income advantage of holding the bond (coupon minus the dividends forgone on the conversion shares). It is undiscounted and ignores call provisions, credit changes and accrued interest.
- CV
- Conversion value per bond
- CR
- Conversion ratio (shares per bond)
- CP
- Conversion price per share
- F
- Face (par) value
- S
- Current share price
- B
- Market price of the convertible bond
- c
- Annual coupon rate
- D
- Annual dividend per share
Worked examples
$1,000 bond convertible into 20 shares at $42
Twenty shares at $42 are worth $840, so a bond priced at $1,050 carries a $210 (25%) conversion premium and an effective cost of $52.50 per share. The $30 coupon beats the $16 of dividends on 20 shares by $14 a year, so the premium takes 15 years to recover. The $920 straight value is the floor.
In-the-money convertible quoted by conversion price
A $25 conversion price means 1,000 ÷ 25 = 40 shares per bond, worth $1,200 at $30. At $1,260 the premium is only $60 (5%), so the bond behaves much like the stock. Coupon income of $20 minus $12 of dividends leaves $8 a year, giving a 7.5-year payback.
Out-of-the-money “busted” convertible
With the stock at $20 against a $40 conversion price, the 25 shares are worth just $500 and the premium is 88%. The bond trades only 4.4% above its $900 straight value, so it now behaves mostly like an ordinary bond.
Frequently asked questions
What is a good conversion premium?+
New convertibles are commonly issued with conversion premiums of roughly 20% to 40%. A low premium (under about 10%) means the bond tracks the stock closely; a very high premium means the conversion option is far out of the money and the bond trades mainly on its yield and credit quality.
How do you calculate the conversion ratio?+
Divide the face value of the bond by the conversion price. A $1,000 bond with a $50 conversion price converts into 1,000 ÷ 50 = 20 shares. Ratios are adjusted for stock splits and some special dividends under the indenture.
What is the difference between conversion price and market conversion price?+
The conversion price is fixed in the bond terms (face value ÷ conversion ratio). The market conversion price is today’s bond price divided by the conversion ratio — the price per share you effectively pay if you buy the bond now and convert.
What is the straight bond value of a convertible?+
It is the value of the bond’s coupons and principal discounted at the yield on a comparable non-convertible bond from the same issuer. It acts as a floor under the convertible’s price as long as the issuer’s credit quality holds up.
Should I convert my convertible bond?+
Converting usually only makes sense when the bond trades at or below its conversion value, when dividends on the shares exceed the coupon, or when the bond has been called. Otherwise selling the bond often captures the remaining premium that converting would give up.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.