Convertible Bond Calculator

On the sample figures used here, a bond with a 1,000 face value converting into 20 shares breaks even at a share price of 50: below that the bond side is worth more, above it the shares are. At 60 the conversion value is 1,200 and converting leads; at 45 it is 900 and the bond side leads. That 50 figure is the conversion price, face value divided by conversion ratio, and it is the number the whole comparison turns on.

How to use it

Enter the bond's par or face value, the conversion ratio, and the current share price. The tool works the conversion price out from those two and measures the share price against it. Both derived rows are defined off par, so a traded market price entered in the face value field produces a conversion price that is not one. Nothing here needs a coupon, a maturity date or a credit spread.

What the result means

The headline is the higher of the two sides. The rows show both sides of that comparison, the conversion price the share has to clear, and how far above or below it the share currently sits. On the sample figures the share is 20% above the conversion price, so the conversion side leads by 200. What the headline means depends on which side is winning. Above the conversion price it is a floor in the strict sense: converting and selling realises parity, so the instrument cannot be worth less. Below it the figure is face value standing in for the bond floor, and the real floor can sit lower: a discount bond, a widened credit spread or a rise in rates all put the debt below par.

What this doesn't model

Time value, credit risk, call features and coupon cash flows are all absent. A full convertible valuation uses a binomial tree or a Monte Carlo model, both of which need a volatility assumption and a term structure this tool does not ask for. What is left is the floor: the higher of the two simple values, and the share price at which they cross.

What moves the number most

Because the result is a maximum of two values, only one side moves it at a time. Above the conversion price the conversion side governs and the headline tracks the share price one for one, while the face value does nothing until it climbs past the conversion value. Below the conversion price the position reverses, and the face value alone sets the answer while the share price is inert. The exception is a share price within about 1% of the conversion price either way, where a 1% move carries the price across it and the headline shifts by less than the input did: at 50.40 a 1% fall takes the headline down 0.79%, and at 49.60 a 1% rise lifts it 0.19%. The conversion ratio scales the conversion side in the same proportion, but it steps in whole shares, so on a ratio of 20 the smallest change available is 5%.

The formula behind this

The headline is the higher of the bond's face value and its conversion value, where conversion value is the ratio multiplied by the share price. The two sides are equal exactly when the share price reaches the conversion price. This ignores coupon value, time to maturity, credit spread, call features and option time value.