Definition of Conversion premium

Conversion premium

The percentage by which the conversion price in a convertible security exceeds the
prevailing common stock price at the time the convertible security is issued.

control premium

the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control

Cash conversion cycle

The length of time between a firm's purchase of inventory and the receipt of cash
from accounts receivable.

Conversion factors

Rules set by the Chicago Board of Trade for determining the invoice price of each
acceptable deliverable Treasury issue against the Treasury Bond futures contract.

Conversion parity price

Related:Market conversion price

Conversion ratio

The number of shares of common stock that the security holder will receive from
exercising the call option of a convertible security.

Conversion value

Also called parity value, the value of a convertible security if it is converted immediately.

Default premium

A differential in promised yield that compensates the investor for the risk inherent in
purchasing a corporate bond that entails some risk of default.

Forced conversion

Use of a firm's call option on a callable convertible bond when the firm knows that the
bondholders will exercise their option to convert.

Forward premium

A currency trades at a forward premium when its forward price is higher than its spot price.

Liquidity premium

Forward rate minus expected future short-term interest rate.

Market conversion price

Also called conversion parity price, the price that an investor effectively pays for
common stock by purchasing a convertible security and then exercising the conversion option. This price is
equal to the market price of the convertible security divided by the conversion ratio.

Option premium

The option price.

Premium

1) Amount paid for a bond above the par value.
2) The price of an option contract; also, in futures
trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a
convertible security.

Premium bond

A bond that is selling for more than its par value.

Risk premium

The reward for holding the risky market portfolio rather than the risk-free asset. The spread
between Treasury and non-Treasury bonds of comparable maturity.

Risk premium approach

The most common approach for tactical asset allocation to determine the relative
valuation of asset classes based on expected returns.

Single-premium deferred annuity

An insurance policy bought by the sponsor of a pension plan for a single
premium. In return, the insurance company agrees to make lifelong payments to the employee (the
policyholder) when that employee retires.

Stated conversion price

At the time of issuance of a convertible security, the price the issuer effectively
grants the security holder to purchase the common stock, equal to the par value of the convertible security
divided by the conversion ratio.

Tender offer premium

The premium offered above the current market price in a tender offer.

Term premiums

Excess of the yields to maturity on long-term bonds over those of short-term bonds.

Time premium

Also called time value, the amount by which the option price exceeds its intrinsic value. The
value of an option beyond its current exercise value representing the optionholder's control until expiration,
the risk of the underlying asset, and the riskless return.

conversion cost

Refers to the sum of manufacturing direct labor and overhead
costs of products. The cost of raw materials used to make products
is not included in this concept. Generally speaking, this is a rough measure
of the value added by the manufacturing process.

Risk Premium

The additional rate of return required on a risky project
(investment) when compared to a risk-free project (investment)

conversion

the process of transformation or change

conversion cost

the total of direct labor and overhead cost;
the cost necessary to transform direct material into a finished good or service

cash conversion cycle

Period between firm’s payment for materials
and collection on its sales.

default premium

Difference in promised yields between a default-free bond and a riskier bond.

market risk premium

Risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.

maturity premium

Extra average return from investing in longversus short-term Treasury securities.

risk premium

Expected return in excess of risk-free return as compensation for risk.

Risk Premium

The difference between the yields of two bonds because of differences in their risk.

Premium Grant

A nonqualified stock option whose option price is set substantially
higher than the current fair market value at the grant date.

Conversion Right

Term life insurance products are offered as non-convertible or convertible to a certain time in the future. The coversion right has a time limit, usually to the policy holder's age 60 or possibly even age 70. This right means that the policy holder has the right to convert their existing policy to another specific different plan of permanent insurance within the specified time period, without providing evidence of insurability. There is a slightly higher cost for a term policy with the conversion priviledge but it is a valuable feature should a policy holder's health change for the worst and continued insurance coverage becomes a necessity.
Most often this right is also granted to individuals covered under employee group benefit policies where individuals leaving the employee group have a limited amount of time, usually anywhere from 30 to 90 days, to convert to a specific permanent individual policy without evidence of insurability.

Level Premium Life Insurance

This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.

Premium

This is your payment for the cost of insurance. You may pay annually, semi-annually, quarterly or monthly. The least expensive method is annually. Using any of the other payment modes will cost you more money. For example, paying monthly will cost about 17% more. If you pay annually and terminate your coverage part way through the year, you may not receive a refund for the remaining months to the annual renewal date.
The cost of life insurance varies by age, sex, health, lifestyle, avocation and occupation. Generally speaking, the following is true at the time of applying for coverage; the older you are, the more will be the cost; of a male and female of the same age, the female will be considered 4 years younger; health problems will increase the cost of insurance and may result in rejection altogether; dangerous hobbies such as SCUBA diving, private flying, bungi jumping, parachuting, etc. may increase the cost of insurance and may result in rejection altogether; abuse of alcohol or drugs or a poor driving record will make getting coverage difficult.

Vanishing Premium

This term relates to participating whole life insurance and the use of the dividend to reduce or completely eliminate the need for future premiums. In the 1980's life insurance company's profits from investment were exceedingly high compared to historical experience. It became common for a salesperson to show new prospective clients how quickly his or her insurance company's dividends would cover the future cost of future premiums. In some cases more emphasis was put on the value of future dividends than on the fact that future dividends were not guaranteed and could only be projected based on current earnings. Many life insurance buyers have since learned that the dividends they expected in the 80's no longer exist in the 90's and they are continuing to dig into their pockets to pay insurance premiums.

Waiver of Premium

This is an option available to the applicant for life insurance which sets certain conditions under which an insurance policy will be kept in full force by the insurance company without the payment of premiums. Very specifically, a life insured would have to become totally disabled through injury or illness for a period of six months before the benefit kicks in. When it does, the insurance company retroactively pays premiums from the beginning of the disability until the time the insured is able to perform some form of regular activity. 'Totally disabled' is highlited here, because that is what is required to receive this benefit.

Risk Premium

The difference between the required rate of return on a riskless asset with the same expected life.

Annual Premium

Yearly amount payable by a client for a policy or component.

Automatic Waiver of Premium

A benefit that automatically forfeits premium payments.

Conversion

The act of changing from one type of life insurance policy to another, without having to give evidence of insurability.

Level Premium

A premium that remains unchanged throughout the life of a policy

Premium

Annual amount payable, by a client, for selected product or service.

Premium (Credit Insurance)

Annual or monthly amounts payable, by a client, for a selected insurance coverage to insure debt obligations to their creditors are protected.

Premium Mode

Payment schedule of policy premiums, usually selected by the policy owner (monthly, quarterly, annually).

Premium Offset

After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.

Unearned Premium

premiums paid for coverage not yet provided.

Waiver of Premium

A benefit that allows CLA to pay premiums on behalf of the insured.

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