Convertible bond

A convertible bond is a corporate bond the holder can exchange for a fixed number of the issuer's shares, so it behaves like ordinary debt when the share price is low and tracks the shares once conversion becomes attractive.

ByHoang TruongUpdated July 11, 2026

See it move

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A convertible bond with a €1,000 par value and a €25 conversion price converts into 40 shares. With the shares trading at €20, converting today would be worth 40 × €20 = €800. The bond actually trades at €880, €80 above that, an 80 ÷ 800 = 10% conversion premium — the price of keeping the coupon and the straight-bond floor while still holding the right to convert later.

Where it fits

SubjectCorporate FinanceAdvancedTopicCapital Structure & LeverageAdvancedTopicBond & Equity ValuationAdvanced

The formula

LaTeX

CR = \frac{F}{P_c}, \quad CV = CR \times P_s

Variables

$C R$: Conversion ratio (shares per bond)
$F$: Par (face) value of the bond (€)
$P_{c}$: Conversion price (€ per share)
$C V$: Conversion value (€)
$P_{s}$: Current market price of the share (€ per share)

Gives the number of shares one bond converts into, and what those shares are worth at the current share price.

LaTeX

Premium = \frac{P_b - CV}{CV}

Variables

$P r e mi u m$: Conversion premium (%)
$P_{b}$: Market price of the convertible bond (€)
$C V$: Conversion value (€)

Measures how much extra, as a percentage of conversion value, the market is paying for the bond over converting it immediately.