What term describes the point where the price of a convertible bond equals the market value of stock received on conversion?

The term that describes the point where the price of a convertible bond equals the market value of the stock received upon conversion is known as parity. When a convertible bond is in parity, it means that the investor is indifferent between holding the bond or converting it into the underlying stock since both options hold equal value.

At this point, if the market price of the convertible bond aligns with the current market value of the shares it can be converted into, the financial decision hinges on personal investment strategy rather than the inherent value of the two positions. Understanding parity is crucial because it helps investors assess the attractiveness of a convertible bond in relation to its underlying stock, guiding their investment decisions based on market dynamics.

In contrast, the other terms mentioned refer to different financial concepts: market value pertains to the current price of the bond in the market; face value, or par value, signifies the amount paid back to the bondholder at maturity; and premium typically refers to the condition where the bond is trading above its face value. Each of these terms has distinct implications for assessing fixed-income securities and their potential for appreciation or depreciation in value.