Series 7 practice questionmediumEquity Securities — Preferred Stock — Convertible
An investor holds 100 shares of $50 par convertible preferred stock, convertible at $25 per common share. How many common shares will the investor receive upon conversion?
- A50 shares
- B100 shares
- C250 shares
- D200 shares✓ Correct answer
Explanation
Why D — 200 shares
The conversion ratio is calculated by dividing the par value of the preferred stock by the conversion price: $50 / $25 = 2 common shares per preferred share. With 100 preferred shares, the investor would receive 100 x 2 = 200 common shares. The conversion ratio is fixed at the time of issuance.
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