FINRA Series 7 – General Securities Representative — Question 13

Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at
52, what does Bubba calculate as the common stock price in order to be at parity with the preferred?

Answer options

• A. 47.50
• B. 52.00
• C. a little less than 49.38
• D. a little more than 54.50

Correct answer: C

Explanation

The correct answer is C because to determine the price of common stock at parity, you need to consider the exchange ratio and the current trading price of the preferred stock. Options A and B do not reflect the necessary calculations for parity, and option D is too high to be at parity.