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Luke Davis owned 150 shares of Sony 6.5% convertible preferred stock, $50 par value, for which...

Luke Davis owned 150 shares of Sony 6.5% convertible preferred stock, $50 par value, for which he paid $56 per share, including commission. Two years later, after receiving preferred dividends each year, he converted to 500 shares of Sony common stock, valued at $22.50 a share at the time of conversion.

a. What was the cost to Luke of the preferred stock?

$

b. How much did Luke receive in dividends from the preferred stock?

$

c. What was the value of the common stock that Luke received?

$

d. If he sells the 500 common shares immediately, how much gain will Luke realize, including his dividend?

$

e. What would be Luke's percent of gain? Round your answer to two decimal places.

%

Expert Solution

(a) No. of Preference shares = 150

Price paid per share 56

So, cost of Preference shares = Price paid * no. of shares

56*150

8400

Cost of Preference shares is $8,400

(b) Preference shares are 6.5% preference shares

Par Value= 50

Preference dividend = Par Value * Dividend %

50 * 6.5%

3.25

Preference dividends on Total shares = 3.25*150

487.5

Holding shares for 2 years

so 2 year dividends = 2*487.5= $975

Total dividends received on preference shares is $975.

(c)

Value per share on conversion = $22.50

No. of shares received= 500

Total value of common stock = no. of shares*Value per share

500*22.50

11250

So, value of common Stock received is $11,250

(d) gain including dividends = (Value of common stock + Dividend received - price paid for Preference shares

11250 + 975 - 8400

3825

So, gain including dividends is $3,825

(e) gain % = Gain/Price paid * 100

3825/8400*100

45.53571429

So, Luke percent of Gain is 45.54%

Do thumbs up.

jeff jeffy answered 1 year ago

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