Answer:
33.3%
Explanation:
Cost of one common stock =$12
Cost of 5 common stock = $60
Price of preferred stock = $75, which is more than $60
Hence, it would not make sense to convert the preferred stock shared into common stock as of now.
Now, if P is $20, then price of 5 stocks:
= 5 × 20
= $100
Hence, the Preferred stock price must increase to at least $100 otherwise there will be arbitrage opportunity.
Increase in price:
= price of 5 stocks - Price of preferred stock
= $100 - $75
= $25
% increase = (Increase in price ÷ Price of preferred stock) × 100
= (25 ÷ 75) × 100
= 33.3%
