A convertible bond is currently selling for $945. It is convertible
into 15 shares of common which presently sell for $57 per share. What is
the conversion premium?
A. $90
B. $45
C. 57 shares
D. 13 shares
Question 2 of 20
The conversion ratio is the:
A. price at which a convertible security is exchanged into common stock.
B. ratio of conversion value to market value of a convertible security.
C. number of shares of common stock into which the convertible may be converted.
D. ratio of the conversion premium to market value of a convertible security.
Question 3 of 20
The conversion premium will be large:
A. if investors have great expectations for the price of the common stock.
B. if interest rates decline.
C. when the conversion value is much greater than the pure bond value.
D. when the stock price is very stable.
Question 4 of 20
A
convertible bond is currently selling for $1335. It is convertible into
20 shares of common which presently sell for $56 per share. What is the
conversion premium?
A. $335
B. $215
C. 66.74 shares
D. 23.8 shares
Question 5 of 20
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.
Question 6 of 20
The theoretical floor value for a convertible bond is its:
A. conversion price.
B. conversion value.
C. par value.
D. pure bond value.
Question 7 of 20
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.
Question 8 of 20
The interest rate on convertibles is generally __________ the interest rate on similar nonconvertible instruments.
A. greater than
B. less than
C. the same as
D. at least twice
Question 9 of 20
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
Question 10 of 20
The principle device used by the corporation to force conversion is:
A. setting the conversion price above the current market price.
B. reducing the amount of interest payments.
C. buying bonds back at below par value.
D. a call provision.
Question 11 of 20
Mirrlees
Corp. has 10,000 6.25% bonds convertible into 40 shares per $1000 bond.
Mirrlees has 600,000 outstanding shares. Mirrlees has a tax rate of
40%. The average Aa bond yield at time of issue was 10%. Compute basic
earnings per share if after-tax earnings are $750,000.
A. $0.71
B. $1.25
C. $1.33
D. $1.51
Question 12 of 20
Vickrey
Technology has had net income of $2,000,000 in the current fiscal year.
There are 1,000,000 shares of common stock outstanding along with
convertible bonds, which have a total face value of $8 million. The $8
million is represented by 8,000 different $1,000 bonds. Each $1,000 bond
pays 3 percent interest. The conversion ratio is 30. The firm is in a
30 percent tax bracket. What is Vickrey's diluted earnings per share?
A. $1.75
B. $1.81
C. $2.00
D. None of the above
Question 13 of 20
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
Question 14 of 20
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 15 of 20
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. $.75
B. $7.50
C. $15
D. $0
Question 16 of 20
A
warrant which does not expire until several years in the future which
provides its owner the opportunity to buy a stock. If the stock price
rises, the warrant will probably sell for __________ its intrinsic
value.
A. less than
B. exactly
C. more than
D. less than or equal to
Question 17 of 20
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.
Question 18 of 20
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.
Question 19 of 20
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.
Question 20 of 20
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
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