Explain how the common stock could be trading

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The CCC Venture has issued convertible preferred stock to its venture investors. Each share of preferred stock is convertible into 0.80 share of common stock and pays an annual cash dividend of $0.25.

A. If each share of preferred stock has a market value of $4, what is the minimum price that a share of the CCC Venture's common stock should be selling for (ignore the dividend yield on the preferred stock)?

B. If a share of the CCC Venture's common stock is actually trading at $3 per share, what are the implied conversion terms? Given the above actual conversion terms, explain how the common stock could be trading at $3 per share while the preferred stock is trading at $4 per share.

 

Reference no: EM13296738

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