Multiple Choice Answers

A $1,000 par value bond with a conversion price of $40 has a conversion ratio of:
A. $25.
B. 25 shares.
C. $40.
D. 40 shares.
The conversion premium is the greatest and the downside risk the smallest when the:
A. conversion value equals the pure bond value.
B. conversion value is greater than the pure bond value.
C. conversion value is less than the pure bond value.
D. stock price is expected to go up drastically.
Conversion price is usually set __________ the prevailing market price of the common stock at the time the bond issue is sold.
A. at
B. below
C. above
D. at one half of
Jacobs and Company has warrants outstanding, which are selling at a $3 premium above intrinsic value. Each warrant allows its owner to purchase one share of common stock at $25. If the common stock currently sells for $28, what is the warrant price?
A. $6
B. $10
C. $12
D. $14
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.
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(n):
A. common stock.
B. option.
C. futures.
D. capital investment.
The owner of a call has the right:
A. and the obligation to buy an asset at a given price.
B. and the obligation to sell an asset at a given price.
C. but not the obligation to buy an asset at a given price.
D. but not the obligation to sell an asset at a given price.
The owner of a put has the right:
A. and the obligation to buy an asset at a given price.
B. and the obligation to sell an asset at a given price.
C. but not the obligation to buy an asset at a given price.
D. but not the obligation to sell an asset at a given price.
Which of the following is NOT an advantage to the corporation of issuing convertibles?
A. Provides a low-cost financing alternative for large, high-quality companies
B. Used when believe stock is undervalued
C. Generally lower cost than straight debt
D. Provides access for small co’s to debt market