Given the following information concerning a $2.00 convertible preferred stock: One share of preferred is convertible into

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Given the following information concerning a $2.00 convertible preferred stock:

One share of preferred is convertible into 0.50 shares of common stock

Price of common stock: .........$34

Price of convertible preferred stock: ....$25

a) What is the value of the preferred stock in terms of common stock?

b) What is the premium over the preferred stock’s value as common stock?

c) If the preferred stock is perpetual and comparable preferred stock offers a dividend yield of 10 percent, what would be the minimum price of this stock if it were not convertible?

d) If the price of the common stock rose to $60, what would be the minimum increase in the value of the preferred stock that you would expect?


Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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