1. What is common stock or common equity? What is the purpose of preemptive rights?

2. What is preferred stock? What is participating preferred stock, and what is meant by paid in kind (PIK) preferred stock? 3. Describe convertible debt and convertible preferred stock. How does convertible debt differ from convertible preferred stock? 4. How are put and call options similar? How are they different? 5. What are the factors that influence the values of American-style options?

6. [Preferred Stock Characteristics] A share of a ventures preferred stock is convertible into 1.5 shares of its common stock. The dividend on the preferred stock is $.50 per share.

a. If the firms common stock is currently trading at $9.75, what is the conversion value of a share of the preferred stock?

b. What would be the dividend yield on the preferred stock based on its conversion value?

c. If the venture doubles the number of shares of its common stock that is outstanding (and cutting its stock price in half) but increases the conversion terms on its preferred stock to 2.5 shares of common stock, what would be the conversion value of a share of preferred stock after the new common stock issue? What would be the new price of the stock? Would the value o the preferred stock go up or down?