Question 1

In comparison to convertibles, the exercise of a warrant shifts the firm's capital structure to a less highly levered position.

Accepted Answer

A) True 
 B)False

Question 2

The following securities are all popular hybrid securities EXCEPT

Accepted Answer

A)  options. 
B)  financial leases. 
C)  stock purchase warrants. 
D)  convertible securities. 
A)  options. 
B)  financial leases. 
C)  stock purchase warrants. 
D)  convertible securities.

Question 3

The presence of contingent securities such as warrants and stock options affects the reporting of thefirm's earnings per share.

Accepted Answer

A) True 
 B)False

Question 4

Griffen Incorporated entered into a swap deal with Ontario Provincial Bank as swap dealer in earlyMay one year. In September that same year, the swap dealer identified Prodborski ManufacturingLimited as as the other counterparty to the swap deal. In this situation, Ontario Provincial Bank as swap dealer is said to have

Accepted Answer

A)  staggered the deal 
B)  warehoused the deal 
C)  layered the deal 
D)  lagged the deal 
A)  staggered the deal 
B)  warehoused the deal 
C)  layered the deal 
D)  lagged the deal

Question 5

An overhanging issue is a convertible security that cannot be forced into conversion by using the call feature.

Accepted Answer

A) True 
 B)False

Question 6

A firm currently has outstanding a 5 percent, $1,000 convertible bond. The bond is convertible into25 shares of common stock and callable at $1,050. The current market price of the firm's stock is $41per share. If the bond is called, the bond holder will most likely

Accepted Answer

A)  allow the call to be exercised. 
B)  do nothing and wait until the stock price goes up further. 
C)  convert the bond into stock. 
D)  sell the bond on the secondary market. 
A)  allow the call to be exercised. 
B)  do nothing and wait until the stock price goes up further. 
C)  convert the bond into stock. 
D)  sell the bond on the secondary market.

Question 7

When a company hedges its balance sheet risk with a fixed-rate for floating rate interest-rate swap,which part of its balance sheet is affected?

Accepted Answer

A)  Long term as well as short term assets and liabilities 
B)  Only its long term liabilities 
C)  Both long-term assets and long term liabilities 
D)  Only its long term assets 
A)  Long term as well as short term assets and liabilities 
B)  Only its long term liabilities 
C)  Both long-term assets and long term liabilities 
D)  Only its long term assets

Question 8

Many holders of convertible bonds will not convert when the firm's common stock price exceeds the conversion price because

Accepted Answer

A)  interest payments are tax deductible. 
B)  of the dilution of EPS. 
C)  the common stock price may go up further. 
D)  they already have the market price benefit and may still receive fixed periodic interest payments. 
A)  interest payments are tax deductible. 
B)  of the dilution of EPS. 
C)  the common stock price may go up further. 
D)  they already have the market price benefit and may still receive fixed periodic interest payments.

Question 9

The conversion ratio can be obtained by dividing the par value of the convertible by the conversion price.

Accepted Answer

A) True 
 B)False

Question 10

Options are a special type of security that provide the holder with the right to purchase or sell specified assets at a stated price on or before a set expiration date.

Accepted Answer

A) True 
 B)False

Question 11

For the counterparties of an interest-rate swap to determine the amount and timing of thepayments they need to make to each other, they must specify

Accepted Answer

A)  the spread, type of interest rate, risk tolerance and maturity date 
B)  the notional amount, type of interest rate, start date and maturity date 
C)  the notional amount, spread, risk tolerance and maturity date 
D)  the type of interest rate, spread, start date and maturity date 
A)  the spread, type of interest rate, risk tolerance and maturity date 
B)  the notional amount, type of interest rate, start date and maturity date 
C)  the notional amount, spread, risk tolerance and maturity date 
D)  the type of interest rate, spread, start date and maturity date

Question 12

The stock-purchase warrant permits the firm to raise additional funds at some point in the future by selling common stock and thereby shifting the firm's capital structure to a less highly levered position.

Accepted Answer

A) True 
 B)False

Question 13

Since the conversion feature provides the purchaser of a convertible bond with the possibility of becoming a stockholder, convertible bonds are generally a less expensive form of financing than similar-risk nonconvertible or straight bonds.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are true of stock-purchase warrants EXCEPT

Accepted Answer

A)  when a firm makes a large issue of debt, the attachment of stock-purchase warrants may add to the marketability of the issue. 
B)  the attachment of warrants may lower the required interest rate. 
C)  warrants are similar to conversion features on debt. 
D)  suppliers of debt are more likely to require warrants on an issue of debt from an existing corporation than from a new firm. 
A)  when a firm makes a large issue of debt, the attachment of stock-purchase warrants may add to the marketability of the issue. 
B)  the attachment of warrants may lower the required interest rate. 
C)  warrants are similar to conversion features on debt. 
D)  suppliers of debt are more likely to require warrants on an issue of debt from an existing corporation than from a new firm.

Question 15

An investor has $1,000 that she is interested in investing in ABC stock, which is currently selling for$10 per share. ABC's warrants are selling for $7 per warrant. Each warrant entitles the holder topurchase three shares of ABC's common stock for $8 per share. The warrant premium is ___________ .

Accepted Answer

A)  $1 
B)  $3 
C)  $2 
D)  $4 
A)  $1 
B)  $3 
C)  $2 
D)  $4

Question 16

All of the following are true of calls and puts EXCEPT

Accepted Answer

A)  the presence of options trading in the firm's stock could, by increasing trading activity, stabilize the firm's share price in the marketplace. 
B)  options are not a source of funding to the corporation. 
C)  the financial manager of a corporation has very little need to deal with options. 
D)  options are issued by businesses. 
A)  the presence of options trading in the firm's stock could, by increasing trading activity, stabilize the firm's share price in the marketplace. 
B)  options are not a source of funding to the corporation. 
C)  the financial manager of a corporation has very little need to deal with options. 
D)  options are issued by businesses.

Question 17

Which of the following options will provide the investor with a profit if the option is exercised?· call option, premium $5, Strike (exercise) price $20, market price $14· put option, premium $5, Strike (exercise) price $20, market price $14

Accepted Answer

A)  put option 
B)  call option 
C)  Both are profitable. 
D)  Neither will provide a profit. 
A)  put option 
B)  call option 
C)  Both are profitable. 
D)  Neither will provide a profit.

Question 18

From the firm's point-of-view, the issuance of convertible bonds has all of the followingadvantages EXCEPT

Accepted Answer

A)  a temporary source of cheap funds. 
B)  upon conversion, an increase in financial leverage. 
C)  tax-deductible interest payments. 
D)  the deferred sale of common stock. 
A)  a temporary source of cheap funds. 
B)  upon conversion, an increase in financial leverage. 
C)  tax-deductible interest payments. 
D)  the deferred sale of common stock.

Question 19

If counterparty A uses a swap for hedging purposes, the company will be in a position where

Accepted Answer

A)  the value of both its assets and its liabilities remain fixed 
B)  the value of its assets stays fixed while the value of its liabilities decreases 
C)  the value of its assets increases while the value of its liabilities decreases 
D)  the value of its assets fluctuates by the same amount as the value of its liabilities fluctuates 
A)  the value of both its assets and its liabilities remain fixed 
B)  the value of its assets stays fixed while the value of its liabilities decreases 
C)  the value of its assets increases while the value of its liabilities decreases 
D)  the value of its assets fluctuates by the same amount as the value of its liabilities fluctuates

Question 20

The market value of a warrant is generally below the theoretical value of the warrant.

Accepted Answer

A) True 
 B)False

In comparison to convertibles, the exercise of a warrant shifts the firm's capital structure to a less highly levered position.

The following securities are all popular hybrid securities EXCEPT

The presence of contingent securities such as warrants and stock options affects the reporting of thefirm's earnings per share.

An overhanging issue is a convertible security that cannot be forced into conversion by using the call feature.

A firm currently has outstanding a 5 percent, $1,000 convertible bond. The bond is convertible into25 shares of common stock and callable at $1,050. The current market price of the firm's stock is $41per share. If the bond is called, the bond holder will most likely

When a company hedges its balance sheet risk with a fixed-rate for floating rate interest-rate swap,which part of its balance sheet is affected?

Many holders of convertible bonds will not convert when the firm's common stock price exceeds the conversion price because

The conversion ratio can be obtained by dividing the par value of the convertible by the conversion price.

Options are a special type of security that provide the holder with the right to purchase or sell specified assets at a stated price on or before a set expiration date.

For the counterparties of an interest-rate swap to determine the amount and timing of thepayments they need to make to each other, they must specify

The stock-purchase warrant permits the firm to raise additional funds at some point in the future by selling common stock and thereby shifting the firm's capital structure to a less highly levered position.

Since the conversion feature provides the purchaser of a convertible bond with the possibility of becoming a stockholder, convertible bonds are generally a less expensive form of financing than similar-risk nonconvertible or straight bonds.

All of the following are true of stock-purchase warrants EXCEPT

An investor has $1,000 that she is interested in investing in ABC stock, which is currently selling for$10 per share. ABC's warrants are selling for $7 per warrant. Each warrant entitles the holder topurchase three shares of ABC's common stock for $8 per share. The warrant premium is ___________ .

All of the following are true of calls and puts EXCEPT

Which of the following options will provide the investor with a profit if the option is exercised?· call option, premium $5, Strike (exercise) price $20, market price $14· put option, premium $5, Strike (exercise) price $20, market price $14

From the firm's point-of-view, the issuance of convertible bonds has all of the followingadvantages EXCEPT

If counterparty A uses a swap for hedging purposes, the company will be in a position where

The market value of a warrant is generally below the theoretical value of the warrant.

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Mergers and Acquisitions, and Business Failure

International Corporate Finance

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Exam 17: Corporate Securities, Derivatives, and Swaps

In comparison to convertibles, the exercise of a warrant shifts the firm's capital structure to a less highly levered position.

The following securities are all popular hybrid securities EXCEPT

The presence of contingent securities such as warrants and stock options affects the reporting of thefirm's earnings per share.

An overhanging issue is a convertible security that cannot be forced into conversion by using the call feature.

A firm currently has outstanding a 5 percent, $1,000 convertible bond. The bond is convertible into25 shares of common stock and callable at $1,050. The current market price of the firm's stock is $41per share. If the bond is called, the bond holder will most likely

When a company hedges its balance sheet risk with a fixed-rate for floating rate interest-rate swap,which part of its balance sheet is affected?

Many holders of convertible bonds will not convert when the firm's common stock price exceeds the conversion price because

The conversion ratio can be obtained by dividing the par value of the convertible by the conversion price.

Options are a special type of security that provide the holder with the right to purchase or sell specified assets at a stated price on or before a set expiration date.

For the counterparties of an interest-rate swap to determine the amount and timing of thepayments they need to make to each other, they must specify

The stock-purchase warrant permits the firm to raise additional funds at some point in the future by selling common stock and thereby shifting the firm's capital structure to a less highly levered position.

Since the conversion feature provides the purchaser of a convertible bond with the possibility of becoming a stockholder, convertible bonds are generally a less expensive form of financing than similar-risk nonconvertible or straight bonds.

All of the following are true of stock-purchase warrants EXCEPT

An investor has $1,000 that she is interested in investing in ABC stock, which is currently selling for$10 per share. ABC's warrants are selling for $7 per warrant. Each warrant entitles the holder topurchase three shares of ABC's common stock for $8 per share. The warrant premium is ___________ .

All of the following are true of calls and puts EXCEPT

Which of the following options will provide the investor with a profit if the option is exercised?· call option, premium $5, Strike (exercise) price $20, market price $14· put option, premium $5, Strike (exercise) price $20, market price $14

From the firm's point-of-view, the issuance of convertible bonds has all of the followingadvantages EXCEPT

If counterparty A uses a swap for hedging purposes, the company will be in a position where

The market value of a warrant is generally below the theoretical value of the warrant.

Overview of Corporate Finance

Financial Statements, Cash Flows, and Taxes

Financial Statement Analysis

Financial Planning and Forecasting

Financial Markets, Institutions, and Securities

Time Value of Money

Risk and Return

Valuation of Financial Securities

The Cost of Capital

Leverage and Capital Structure

Dividend Policy

Capital Budgeting: Principles and Techniques

Dealing With Project Risk and Other Topics in Capital Budgeting

Working Capital and Management of Current Assets

Management of Current Liabilities

Lease Financing: Concepts and Techniques

Mergers and Acquisitions, and Business Failure

International Corporate Finance

Filters