Posted in Finance, Accounting and Economics Terms, Total Reads: 505
Definition: Parity Price
Parity price is the concept where an increase in the costs or price of inputs or raw material affects the production, which further affects the overall cost and hence the selling price by a similar margin.
Parity price finds most common use in the context of convertible securities. It is the price paid by an investor to exchange or convert a convertible security into common stock.
It is given by the formula:
Parity Price = Convertible security price/Conversion ratio
In case of common stock: Market Value/Conversion Ratio
The usage of parity price as a concept is also extended to import and export and is known as import parity & export parity respectively. These prices are determined by the various tariffs, transportation costs, overhead expenses etc and have to be paid during import/export.