Suppose a preferred stock convertible into 5 shares of common stock is currently trading at $100 a share. If the common stock is trading at $18 per share, the conversion premium is closest to:
A) $0
B) $10
C) $18
D) $20

Question

Quizplus · Accepted Answer

The conversion value is the current price of the common stock multiplied by the number of shares it can be converted into, which is $18 * 5 = $90. The conversion premium is the difference between the market price of the preferred stock and its conversion value, which is $100 - $90 = $10.

Suppose a Preferred Stock Convertible into 5 Shares of Common