Question

Sonia Revas owned 700 shares of PIE 6% convertible stock, $60 par value, for which she...

Sonia Revas owned 700 shares of PIE 6% convertible stock, $60 par value, for which she paid $52 a share. She received a dividend for 1 year. She then converted the preferred stock to 500 shares of common stock valued at $95.50 a share.

a. What was the cost to Sonia for her preferred stock?

$

b. How much did Sonia receive as a dividend for her preferred stock?

$

c. What was the value of her common stock at the time of conversion?

$

d. If the common stock paid an annual dividend of $6.00 a share, how much more dividend would she receive annually?

$

e. What was Sonia's percent of increase in annual return as a result of conversion to common stock? Round your answer to two decimal places.

%

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Answer #1
a) Cost of preferred stock = 700*52 = $        36,400
b) Dividend received on preferred stock = 700*60*6% = $          2,520
c) Value of common stock at the time of conversion = 500*95.50 = $        47,750
d) Annual dividend on common stock = 500*6 = $          3,000
e) % return on conversion to common stock:
i) Return on original investment = 3000/36400 = 8.24%
% increase in annual return = 8.24%-6.00% = 2.24%
ii) Return on value of common stock = 3000/47750 = 6.28%
% increase in annual return = 6.28%-6.00% = 0.28%
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