The conversion ratio (conversion rate) is the multiple expressing the fixed amount of underlying into which a bond can be exchanged, it being set at the time of the bond’s issuance. The conversion ratio times the conversion price will equal the bond’s par value. The indentures of convertibles contain an anti-dilution clause allowing for the proportionate adjustment to the conversion ratio in the event of a stock dividend or split, thereby protecting convertible holders against dilution.
Conversion Ratio = Bond Par Value/Conversion Price
The total market value of the underlying security into which a convertible bond can be currently exchanged is its conversion value (i.e., conversion ratio x current stock price). A conversion premium is the percentage amount by which the bond sells above its conversion value.