Series 7 Tool · Free · Updated 2026

Parity & Arbitrage Analyzer

Determine if a convertible bond is trading at a Premium, Discount, or Parity to the stock.

⚙️ Bond Terms
$
$
Ratio: 20 Shares per Bond
$
$
Stock Parity Price
$52.50
Bond Price ÷ Ratio
Bond Parity Price
$1,040
Stock Price × Ratio
Cost
$1,050
Bond Price
Value
$1,040
(Stock × Ratio)
Trading at Premium

The Bond costs more than the stock is worth.

For visualization, within $0.50 is treated as parity.
💰 Potential Arbitrage (Exam Simplification)
Buy Bond ($) → Convert to Shares → Sell Stock ($)
Potential Profit: per bond.
Assumes conversion can be executed and fractional-share value is realized (cash-in-lieu). Ignores commissions, taxes, settlement timing, and call risk.
📐 The 4 Key Formulas
1. Conversion Ratio = Par ÷ Conversion Price
2. Stock Parity = Bond Price ÷ Ratio
3. Bond Parity = Stock Price × Ratio
4. Compare Bond Price vs Bond Parity → Premium / Discount / Parity
⚖️ Premium vs Discount
Premium: Bond costs more than conversion value — don't convert.
Discount: Bond costs less than conversion value — potential arbitrage opportunity (on the exam).
Parity: Bond price equals conversion value — investor is indifferent.
💡 Think of it as a see-saw. The bond sits on one side, the stock value on the other. When the bond side is heavier (premium) — don't convert. When the stock side is heavier (discount) — converting could be profitable. At parity the see-saw is balanced.

Master the Parity "See-Saw"

There are 4 key formulas for Convertible Bonds. Master them with our Tests and QuizBuilder.

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About this tool: Interactive convertible bond parity calculator for the FINRA Series 7 exam, updated for 2026. Calculates the Conversion Ratio (Par Value ÷ Conversion Price), Stock Parity Price (Bond Market Price ÷ Conversion Ratio), and Bond Parity Price (Stock Market Price × Conversion Ratio). Determines whether the bond is trading at a premium, discount, or parity to the underlying stock. Features a live balance scale visualizer and arbitrage opportunity detector. Published by 2DollarTests.

Convertible Bond Parity Calculator Summary

This interactive convertible bond parity calculator is designed for the Series 7 exam updated for 2026. The Conversion Ratio is calculated by dividing the Par Value of the bond usually $1,000 by the Conversion Price stated in the indenture. For example if the conversion price is $50 the ratio is 20 shares per bond. The Stock Parity Price is calculated by dividing the Bond Market Price by the Conversion Ratio which tells you what the stock would need to trade at for the bond and stock to be equal in value. The Bond Parity Price is calculated by multiplying the Stock Market Price by the Conversion Ratio which tells you what the bond should be worth based on the current stock price. When the bond market price is higher than the bond parity price the bond is trading at a premium and conversion does not make sense because the bond costs more than the shares you would receive. When the bond market price is lower than the bond parity price the bond is trading at a discount and a potential arbitrage opportunity exists in a simplified exam framework where you could buy the bond convert to stock and sell the stock for a profit equal to the difference between bond parity and bond market price. This simplified arbitrage ignores transaction costs settlement timing taxes and call risk. When the bond market price equals the bond parity price the bond is at parity and the investor is indifferent between holding the bond and converting to stock. If the conversion ratio results in fractional shares the bondholder receives cash in lieu of the fractional share. The four key formulas for convertible bonds on the Series 7 are: first the Conversion Ratio equals Par Value divided by Conversion Price. Second the Stock Parity Price equals Bond Market Price divided by Conversion Ratio. Third the Bond Parity Price equals Stock Market Price times Conversion Ratio. Fourth comparing Bond Market Price to Bond Parity Price determines premium discount or parity. Published by 2DollarTests.

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