Valerian Corp. convertible preferred stock has a fixed conversion ratio of 4 common shares per 1 share of preferred stock.
The preferred stock pays a dividend of 7.00 per share per year. The common stock currently sells for $30 per share and pays a dividend of $1.50 per share per year.
a. The current conversion value of each preferred share is
b. If the preferred shares are selling at $116 each, should an investor convert the preferred shares to common shares? (Yes/No)
c. What is one factor that might cause an investor not to convert from preferred to common stock? (Select the best answer? below.)
A. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are equal to what they would receive on the preferred stock.
B. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are greater than what they would receive on the preferred stock.
C. An investor might not convert from preferred to common stock if the dividends they will receive on the common stock are less than what they would receive on the preferred stock.