Preferred Stock
An investor holds convertible preferred stock with a conversion ratio of 5:1. The preferred stock is trading at $80, and the common stock is at $18. The parity price of the preferred is:
Parity price is the value of the common stock received upon conversion. With a 5:1 ratio and common at $18, parity = 5 x $18 = $90. Since parity ($90) exceeds the preferred market price ($80), conversion would be profita
Complete Analysis & Legal Rationale
Parity price is the value of the common stock received upon conversion. With a 5:1 ratio and common at $18, parity = 5 x $18 = $90. Since parity ($90) exceeds the preferred market price ($80), conversion would be profitable.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.