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Conversion Ratio

A provision in a company’s prospectus that spells out the number of common shares a holder of convertible securities will receive upon exercising the conversion option. The conversion ratio is an important input, in addition the par value of the security, in the calculation of conversion price. It is also a key ingredient for calculating the conversion value (the security’s value if it converted immediately). For example, the prospectus may stipulate a conversion ratio of 20, meaning that every security can be converted into 20 common shares.


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