Help with #3?
MUU SUUNTLY Idung publicly trade com). Compare 1. Web-surfing exercise: Search the wel 101 offering of a convertible preferred security. Pos- sible search words include "direct public offer- ing" or "small corporate offering registration" (SCOR). Analyze the conversion and dilution clauses offered in the security. a publicly tradcu le options (e.g., http://www.cboe.com). the option price to the value of exer price - exercise price) and commer difference. le of exercise (stock ad comment on the to 1.5 shares of its value of a share of Exercises/Problems 1. (Preferred Stock Characteristics] A share of a venture's preferred stock is convertible into 1.5 share common stock. The dividend on the preferred stock is $0.50 per share. A. If the firm's common stock is currently trading at $9.75, what is the conversion value of as the preferred stock? B. What would be the dividend vield on the preferred stock based on its conversion value? C. What explanation would you give if the venture's preferred stock currently trades at $15? Wh.. would be the dividend yield? D. If the venture doubles the number of shares of its common stock that are outstanding (and cuts stock price in half) but increases the conversion terms on its preferred stock to 2.5 shares of mon stock, what would be the conversion value of a share of preferred stock after the new com stock issue? What would be the dividend yield on the preferred stock based on this new conversion value? E. If the venture increased its common stock offering by 50 percent (instead of 100 percent), what common stock conversion ratio would be needed on a share of preferred stock to keep its conver- sion value the same as it was before the new common stock issue? 2. [Convertible Preferred Stock Concepts] The CCC (triple C) Venture has issued convertible preferred stock to its venture investors. Each share of preferred stock is convertible into 0.80 shares 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. 3. [Conversion Price and Market Price Formulas] Calculate the conversion price formula (CPF) and market price formula (MPF) prices for an offering involving an existing conversion price of $1, a hypothesized market price of $2, and a new offering price of $0.95 for 1,000 shares with 2,000 shares outstanding before the new issue. Relate the new conversion price to the implied new conversion ratio. 4. Conversion Price and Market Price Formulas Show how your answers for Problem 3 would change if the new offering price was $0.80 for 1,500 shares. Assume other things remain the same. 5. (Stock Option Concepts Draw the payoff diagram for the following options: A. Call option to buy a venture's stock at $3. B. Put option to sell a venture's stock back to the venture at $15. 6. (Stock Option Concepts) Draw the payoff for a portfolio of a share of venture equity and a short (som call option to buy that share at $5. 7. (Stock Unit Concepts Sometimes the combination of a share and a warrant is called a stock unit. does the payoff diagram look like for such an investment? alled a stock unit. What
