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Question;Question 1;A convertible security is almost always;A. a security that can be converted into any other type of;security.;B. a debt security that can be converted into preferred;stock.;C. a security that can be converted into common stock at the;holder's option.;D. a security that can be converted into common stock at the;option of the issuing corporation.;Question 2 of 20 5.0;Points;Warrants are;A. long-term options to sell shares of the issuing firm's;stock.;B. fairly stable, low-risk investments.;C. investments whose value is directly related to the price;of the underlying stock.;D. structured to sell for precisely their intrinsic value.;Question 3 of 20 5.0;Points;A warrant that does not expire until several years in the;future and that provides its owner the opportunity to buy a stock that is;rising in price will probably sell for;A. less than its intrinsic value.;B. exactly its intrinsic value.;C. more than its intrinsic value.;D. less than or equal to its intrinsic value.;Question 4 of 20 5.0;Points;A convertible bond is often utilized;A. as a sweetener when selling debt.;B. to sell common stock at prices higher than those;prevailing when funds are needed.;C. when there is no demand for straight debt.;D. All of the above;Question 5 of 20 5.0;Points;If the stock price rises substantially above the conversion;price, an advantage to the corporation would be;A. the premium would decrease.;B. the floor price would offer the investor downside;protection.;C. the bond would most likely be converted into common stock;and the debt would not have to be repaid.;D. None of the above;Question 6 of 20 5.0;Points;Which of the following is TRUE about warrants?;A. As the market value of a warrant increases, so does the;premium.;B. A rising stock price is usually followed by an increase;in the price of the warrant.;C. Both A and B;D. None of the above;Question 7 of 20 5.0;Points;One advantage to the corporation in selling a convertible;bond is;A. the interest rate on a convertible is lower than a;straight debt issue of equal risk.;B. the bond may never get converted into common stock and;create dilution.;C. if interest rates fall the bond is likely to be refunded.;D. All of the above;Question 8 of 20 5.0;Points;The principal device used by the corporation to force;conversion;A. is setting the conversion price above the current market;price.;B. is reducing the amount of interest payments.;C. is buying bonds back at below par value.;D. is a call provision.;Question 9 of 20 5.0;Points;When a company has a convertible bond in its capital;structure;A. it can reduce its debt-to-equity ratio by calling the;bond.;B. there is no effect on the firm's primary earnings per;share.;C. there is no advantage to the firm in forcing conversion;of the bonds.;D. All of the above;Question 10 of 20 5.0;Points;The theoretical floor value for a convertible bond is its;A. conversion price.;B. conversion value.;C. par value.;D. pure bond value.;Question 11 of 20 5.0;Points;The floor price of a convertible bond cannot fall below;A. the conversion ratio.;B. the conversion price.;C. the conversion premium.;D. the pure bond value.;Question 12 of 20 5.0;Points;The conversion premium is the greatest and the downside risk;the smallest when;A. the conversion value equals the pure bond value.;B. the conversion value is greater than the pure bond value.;C. the conversion value is less than the pure bond value.;D. the stock price is expected to go up drastically.;Question 13 of 20 5.0;Points;The pure bond value of a convertible bond is found by;A. multiplying the price of the firm's common stock by the conversion;ratio.;B. multiplying the bond's conversion premium by the price of;the firm's common stock.;C. multiplying the price of the firm's common stock by the;conversion ratio and adding the present value of the bond's face value.;D. finding the present value of the bond's interest payments;and adding the present value of the bond's face value.;Question 14 of 20 5.0;Points;The intrinsic value of a warrant to buy 5 shares of Merton;stock at $55 per share is $20. What is the current market price of Merton;stock?;A. $55;B. $59;C. $60;D. None of the above;Question 15 of 20 5.0;Points;Sen Corporation warrants carry the right to buy 10 shares of;Sen common stock at $3.50 per share. The common stock has a current market;price of $4.25 per share. What is the intrinsic or minimum value of one Sen;warrant?;A. $0.75;B. $7.50;C. $15;D. $7.75;Question 16 of 20 5.0;Points;The Burma Hat Company's warrant is trading for $10.20. The;warrant carries the option to purchase two shares of common stock for $48. What;is the speculative premium if the stock price is $51.30?;A. $3.30;B. $3.60;C. $6.60;D. $3;Question 17 of 20 5.0;Points;The Rocky Scholes Swimwear's warrant is trading for $10. The;warrant carries the option to purchase a half share of common stock for $40.;What is the speculative premium if the stock price is $50?;A. $1;B. $2.50;C. $5;D. $10;Question 18 of 20 5.0;Points;A contract giving the owner the right to buy or sell an;asset at a fixed price for a given period of time is;A. a common stock.;B. an option.;C. a futures.;D. a capital investment;Question 19 of 20 5.0;Points;Options contracts contrast with futures because;A. options are not traded on organized exchanges.;B. options create an obligation for the owner of the;instrument.;C. options are derivatives.;D. None of the above;Question 20 of 20 5.0;Points;Which contract is an option?;A. A call;B. A put;C. A future;D. Both A and B


Paper#50567 | Written in 18-Jul-2015

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