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Exam Series 7 topic 1 question 23 discussion

Actual exam question from FINRA's Series 7
Question #: 23
Topic #: 1
[All Series 7 Questions]

Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at
52, what does Bubba calculate as the common stock price in order to be at parity with the preferred?

  • A. 47.50
  • B. 52.00
  • C. a little less than 49.38
  • D. a little more than 54.50
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Suggested Answer: C 🗳️
a little less than 49.38. Bubba needs a calculator to divide the par value of the preferred stock by the price of the common stock. He then divides the result into the price at which the preferred stock is trading.50 divided by 47.50 = 1.05352 divided by 1.053 = 49.38.
by MorrowA3 at Aug. 14, 2021, noon

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MorrowA3
2 years, 8 months ago
Oh… 50/52=.9615*47.5
upvoted 1 times
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MorrowA3
2 years, 8 months ago
Is this correct? Where does the 1.053 come from? 47.5/ 50=x. X/ CMP (52)=.0202
upvoted 1 times
...

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