Finra Exam Series-7 Topic 6 Question 89 Discussion

Actual exam question for Finra's Series-7 exam

Question #: 89
Topic #: 6

The preferred stock of Greatest Technology Corporation has a $100 par and is convertible into four shares of common stock. The preferred is trading at 104.50. The preferred is callable at 101. If the common stock price is presently 27.89, which of the following actions would be a successful arbitrage:

Apurchase 400 shares of common stock and sell 100 shares of preferred stock as ''short exempt'' (that is, the sale is exempt from the uptick rule)

Bpurchase the preferred stock and sell an appropriate amount of the common stock ''short exempt''

Cpurchase both the common and the preferred stocks as a hedge against further market risk

Dpurchase the preferred stock and let it be called, which is inevitable at these market prices

Show Suggested Answer

Suggested Answer: A

$0.45. Since treasury stock does not receive dividends, divide $450,000 by the outstanding 100,000 shares to arrive at $0.45 per share.

by Lacey at Jun 02, 2024, 11:45 PM

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Heike

1 months ago

What do you call a stock that can't make up its mind? A flip-flop! Anyway, I think I'll go with option B. Let's do this!

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Cary

1 months ago

Hold up, is that a pun I see? 'Short exempt'? Haha, these exam questions are getting more creative every year!

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Elbert

1 months ago

Ooh, this is a tricky one! I think I'll go with option B. Gotta love that arbitrage opportunity!

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Stevie

14 days ago

I'm not sure about option C or D, they don't seem like good arbitrage strategies.

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Zachary

15 days ago

I think option A could also work well in this situation.

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Stephaine

16 days ago

I agree, option B seems like the best choice for arbitrage.

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3 months ago

I think the answer is B.

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