Conversion Price is the set price at which a convertible security may be exchanged for another security.
An issuer may elect to issue a convertible preferred stock or a convertible bond to make the issue more attractive to investors. By issuing convertible securities the issuer may be able to realize a significant savings each year in the form of lower interest and dividend payments. The price at which the bonds or preferred stock may be converted into common shares is set at issuance and usually does not change. The number of shares that can be received upon conversion is found by using the following formula: par value / conversion price.
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