Problem:

Convertible preferred stock Valerian Corp. convertible preferred stock has a fixed conversion ratio of 5 common shares per 1 share of preferred stock. The preferred stock pays a dividend of $10.00 per share per year. The common stock currently sells for $20.00 per share and pays a dividend of $1.00 per share per year.

Required:

Question 1: Judging on the basis of the conversion ratio and the price of the common shares, what is the current conversion value of each preferred share?

Question 2: If the preferred shares are selling at $96.00 each, should an investor convert the preferred shares to common shares?

Question 3: What factors might cause an investor not to convert from preferred to common stock?

Note: Explain all calculation and formulas.