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One of the key role of an equity analyst is to identify profitable opportunities. You are working as an equity analyst for an exchange traded
One of the key role of an equity analyst is to identify profitable opportunities. You are working as an equity analyst for an exchange traded fund, which offers shariah-compliant investment solutions. Yesterday, one of your coworker (Salma) resigned and today the investments managed by Salma are included in your portfolio. You noticed that during the last year, Salma has invested a sizable portion of her portfolio in preferred stock and common equity of Gamestop. The main business of Gamestop is selling computer games. Salma bought equity shares of Gamestop at a share price of AED 10 per share and preferred stocks at AED 5 per share on 01/01/2022. Today Gamestop conducted an analyst session to all the fund managers to present the results of the third quarter of this year. Gamestop announced a dividend payment of AED 1 per share for common equity holders. They also announced that they have changed their capital structure and issued new debt securities during the last quarter. You analyzed their new capital structure and found that proportion of debt in their capital structure has become higher than the sharia compliant acceptable proportion of debt. Today the share price of Gamestop common equity share is AED 20 per share, whereas, the price of preferred share is AED 6 per share. As a fund manager, what options do you have? Will you keep Salma's investment or not? Please elaborate on the details of each option by discussing the shariah compliance aspect as well as the treatment of funds received from this investment
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