Conversion value = conversion ratio x stock price = 5 x $20 = $100
Based on judgement of the preferred stock price versus the conversion value the investor should change. If converted, the investor has $100 of value against only $96 if she keeps ownership of the preferred stock. If the investor changes to common stock she will start receiving $1.00 per share per year of dividends. Conversion will make $5.00 per year of total dividends. If the investor keeps the preferred they will obtain $10.00 per year of dividends. This extra $5.00 per year in dividends may reason the investor to retain the preferred up until forced to change through use of the call feature.
