Explanation

A convertible security with par value or issue price of 100 and with an option to convert to common shares at a conversion price of 20 is said to have a conversion ratio of 5 (100/20).
The par value or issue price of a convertible security divided by the conversion ratio equals the conversion price.
The straight-bond value of the convertible bond is the discounted value of principal and interest payments using the effective rate of a similar security without the conversion feature.

Verified Answer

The quantity of common shares that will be received from conversion of convertible bonds or convertible preferred shares
The price at which the common shares are effectively bought when purchased through a convertible security
The value of a convertible bond without the conversion feature