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%, 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?