CFA Level I · CFA Level I Exam · Equity Issuance and Trading
Convertible preference shares have a par value of $100, a 6% dividend, and convert into 4 common shares each. The common shares trade at $22. The conversion value of one preference share is closest to:
The conversion value is the number of common shares received multiplied by the common share price: 4 × $22 = $88. The $22 figure ignores the conversion ratio, and $100 is only the par value, not what the shares are worth if converted.
- A$22
- B$88Correct
- C$100
Explanation
Conversion value = 4 shares × $22 = $88. The $22 option is the price of one common share, ignoring the ratio. The $100 option is the par value, which is not the conversion value.
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