An investor's effective cost to purchase common stock when it is purchased in the form of a convertible security and the investor then exercises the security's conversion option. The market conversion price is calculated by dividing the convertible security's market price by the convertible security's conversion ratio.

Examples of convertible securities include convertible bonds, which can be exchanged for shares of a company’' stock, and convertible preferred stock, which can be exchanged for shares of common stock. Collectively, this category of investments is known as "convertibles."




Taobiz explains Market Conversion Price

When the investor purchases the convertible security, it will often be associated with a conversion ratio that predetermines the number of shares the investor will receive by choosing to convert the security. The conversion ratio will initially value the security for more than the security's current market value, but as market conditions change, so can this relationship.