What is the face value of the cps-freddie ltd

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Freddie Ltd has just raised $500m by issuing 5m converting preference shares (CPS) with a base dividend of 6.5% p.a. The CPSs mature in 5 years time. On the conversion date, each CPS converts into N ordinary shares based on S, the share price immediately prior to conversion with a conversion discount equals to 5%. The number of ordinary shares issued on conversion will be subject to a minimum of 9.6 and a maximum of 100.

You currently own 100,000 Freddie Ltd CPS.

(a) What is the face value (issue price) of the CPS?

(b) If share price immediately prior to conversion is expected to be $4, what is the total number and value of shares you expect to receive upon conversion?

(c) What would be your answers in b) if S=$8?

(d) What would be your answer in a) if S=$0.9

(e) Comment on your answers in b), c) and d)

(f) At what price do you start to benefit from the CPS?

Reference no: EM132643383

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