Question 1

In a currency swap, which of the following type of payment exchange is impossible?

Accepted Answer

A)  fixed payment in one currency for floating payment in another currency 
B)  fixed payment in one currency for floating payment in the same currency 
C)  floating payment in one currency for floating payment in another currency 
D)  fixed payment in one currency for fixed payment in another currency 
A)  fixed payment in one currency for floating payment in another currency 
B)  fixed payment in one currency for floating payment in the same currency 
C)  floating payment in one currency for floating payment in another currency 
D)  fixed payment in one currency for fixed payment in another currency

Question 2

The straight bond value is the___________price at which a convertible bond would be traded.

Accepted Answer

A)  optimum 
B)  maximum 
C)  average 
D)  minimum 
A)  optimum 
B)  maximum 
C)  average 
D)  minimum

Question 3

The option buyer who expects a stock price to decline will purchase a put option.

Accepted Answer

A) True 
 B)False

Question 4

The call privilege is generally not exercised until the conversion value of the security is__________ the call price.

Accepted Answer

A)  equal to 
B)  10 to 15 percent above 
C)  5 to 10 percent below 
D)  25 to 30 percent above 
A)  equal to 
B)  10 to 15 percent above 
C)  5 to 10 percent below 
D)  25 to 30 percent above

Question 5

For which of the following purposes would an interest-rate swap be unsuitable?

Accepted Answer

A)  to utilize a low-cost/high-leverage method of establishing a trading position in a particular market 
B)  to take advantage of a general drop in interest rates 
C)  to hedge or offset a risk on a company's balance sheet 
D)  to benefit from comparative advantages in different markets 
A)  to utilize a low-cost/high-leverage method of establishing a trading position in a particular market 
B)  to take advantage of a general drop in interest rates 
C)  to hedge or offset a risk on a company's balance sheet 
D)  to benefit from comparative advantages in different markets

Question 6

The exercise price or option price of a warrant is normally set below the market price of the firm'sstock at the time of issuance.

Accepted Answer

A) True 
 B)False

Question 7

The call price of the security generally___________the security's par value.

Accepted Answer

A)  has no relation to 
B)  is greater than 
C)  is less than 
D)  is equal to 
A)  has no relation to 
B)  is greater than 
C)  is less than 
D)  is equal to

Question 8

In a currency swap, the notional amount is exchanged.

Accepted Answer

A) True 
 B)False

Question 9

A firm needs $5 million of new long-term financing. The firm is considering the sale of common stock or a convertible bond. The current market price of the common stock is $65 per share. To sell this new issue, the stock would have to be underpriced by $2 and sold for $63 per share. The firm currently has 600,000 shares of common stock outstanding. The alternative is to issue 20-year, 10 percent, and $1,000 par-value convertible bonds. The conversion price would be set at $73 per share, and the bond could be sold at par. The earnings for the firm are expected to be $4,000,000 in the coming year. Assuming the firm chooses the convertible bond, the earnings per share after all bonds are converted will be ______________.

Accepted Answer

A)  $5.98 
B)  $5.88 
C)  $5.91 
D)  $6.67 
A)  $5.98 
B)  $5.88 
C)  $5.91 
D)  $6.67

Question 10

The effect of exercising a warrant on the firm's capital structure reduces leverage___________converting a convertible security.

Accepted Answer

A)  more than 
B)  without relationship to 
C)  less than 
D)  as much as 
A)  more than 
B)  without relationship to 
C)  less than 
D)  as much as

Question 11

Two companies would like to borrow money. Company A is offered a fixed rate of 6% and a floating rate of the BA rate (= the current yield on Bankers' Acceptances) + 1.25%. Company B is offered a fixed rate of 7% and a floating rate of the BA rate + 0.25%. Given this information, which of the following statements is correct?

Accepted Answer

A)  Both companies can benefit from a swap given this information 
B)  Company B would benefit from a swap with Company A, but Company A cannot benefit from a swap. 
C)  Neither company can benefit from a swap given this information 
D)  Company A would benefit from a swap with Company B, but Company B cannot benefit from a swap. 
A)  Both companies can benefit from a swap given this information 
B)  Company B would benefit from a swap with Company A, but Company A cannot benefit from a swap. 
C)  Neither company can benefit from a swap given this information 
D)  Company A would benefit from a swap with Company B, but Company B cannot benefit from a swap.

Question 12

A firm has outstanding convertible preferred stock with a $50 par value which is convertible into three shares of common stock. The conversion value is $45. What is the current market price of a share of common stock?

Accepted Answer

A)  $17.33 
B)  $16.67 
C)  $15.00 
D)  $20.00 
A)  $17.33 
B)  $16.67 
C)  $15.00 
D)  $20.00

Question 13

Which of the following describes a major way in which currency swaps differ from interest-rate swaps?

Accepted Answer

A)  The notional amount is exchanged in a currency swap, but not in an interest-rate swap 
B)  Currency swaps include only interest payments in more than one currency 
C)  Interest-rate swaps may include more than one currency, currency swaps include one currency 
D)  The notional amount is exchanged in an interest-rate swap, but not in a currency swap 
A)  The notional amount is exchanged in a currency swap, but not in an interest-rate swap 
B)  Currency swaps include only interest payments in more than one currency 
C)  Interest-rate swaps may include more than one currency, currency swaps include one currency 
D)  The notional amount is exchanged in an interest-rate swap, but not in a currency swap

Question 14

A convertible bond is almost always ___________with a call feature.

Accepted Answer

A)  a debenture 
B)  a mortgage bond 
C)  an income bond 
D)  an equipment trust certificate 
A)  a debenture 
B)  a mortgage bond 
C)  an income bond 
D)  an equipment trust certificate

Question 15

A firm has an outstanding bond with a $1,000 par value that is convertible into 50 shares of common stock. The bond's conversion ratio is ___________ .

Accepted Answer

A)  50 
B)  100 
C)  25 
D)  20 
A)  50 
B)  100 
C)  25 
D)  20

Question 16

Convertibles can be used as a form of deferred common stock financing.

Accepted Answer

A) True 
 B)False

Question 17

The market premium may be defined as the amount by which the conversion value exceeds its straight value.

Accepted Answer

A) True 
 B)False

Question 18

Converting a convertible security is beneficial when the market price of the common stock into which it can be converted is greater than its conversion price.

Accepted Answer

A) True 
 B)False

Question 19

Two companies would like to borrow money. Company A is offered a fixed rate of 4% and afloating rate of the BA rate (= the current yield on Bankers' Acceptances) + 0.4%. Company B isoffered a fixed rate of 6% and a floating rate of the BA rate + 1.4%. Given this information, which of the following statements is correct?

Accepted Answer

A)  Company A would benefit from a swap with Company B, but Company B cannot benefit from a swap. 
B)  Neither company can benefit from a swap given this information 
C)  Company B would benefit from a swap with Company A, but Company A cannot benefit from a swap. 
D)  Both companies can benefit from a swap given this information 
A)  Company A would benefit from a swap with Company B, but Company B cannot benefit from a swap. 
B)  Neither company can benefit from a swap given this information 
C)  Company B would benefit from a swap with Company A, but Company A cannot benefit from a swap. 
D)  Both companies can benefit from a swap given this information

Question 20

The market value of a convertible bond will exceed the conversion value or straight bond value, whichever is greater, by an amount called the market premium. This premium exists because

Accepted Answer

A)  buyers and sellers do not usually agree on the conversion value. 
B)  markets are efficient. 
C)  purchasers expect future stock price movements to be positive. 
D)  the straight bond value is close to the conversion value. 
A)  buyers and sellers do not usually agree on the conversion value. 
B)  markets are efficient. 
C)  purchasers expect future stock price movements to be positive. 
D)  the straight bond value is close to the conversion value.

In a currency swap, which of the following type of payment exchange is impossible?

The straight bond value is the___________price at which a convertible bond would be traded.

The option buyer who expects a stock price to decline will purchase a put option.

The call privilege is generally not exercised until the conversion value of the security is__________ the call price.

For which of the following purposes would an interest-rate swap be unsuitable?

The exercise price or option price of a warrant is normally set below the market price of the firm'sstock at the time of issuance.

The call price of the security generally___________the security's par value.

In a currency swap, the notional amount is exchanged.

The effect of exercising a warrant on the firm's capital structure reduces leverage___________converting a convertible security.

A firm has outstanding convertible preferred stock with a $50 par value which is convertible into three shares of common stock. The conversion value is $45. What is the current market price of a share of common stock?

Which of the following describes a major way in which currency swaps differ from interest-rate swaps?

A convertible bond is almost always ___________with a call feature.

A firm has an outstanding bond with a $1,000 par value that is convertible into 50 shares of common stock. The bond's conversion ratio is ___________ .

Convertibles can be used as a form of deferred common stock financing.

The market premium may be defined as the amount by which the conversion value exceeds its straight value.

Converting a convertible security is beneficial when the market price of the common stock into which it can be converted is greater than its conversion price.

The market value of a convertible bond will exceed the conversion value or straight bond value, whichever is greater, by an amount called the market premium. This premium exists because

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 a currency swap, which of the following type of payment exchange is impossible?

The straight bond value is the___________price at which a convertible bond would be traded.

The option buyer who expects a stock price to decline will purchase a put option.

The call privilege is generally not exercised until the conversion value of the security is__________ the call price.

For which of the following purposes would an interest-rate swap be unsuitable?

The exercise price or option price of a warrant is normally set below the market price of the firm'sstock at the time of issuance.

The call price of the security generally___________the security's par value.

In a currency swap, the notional amount is exchanged.

The effect of exercising a warrant on the firm's capital structure reduces leverage___________converting a convertible security.

A firm has outstanding convertible preferred stock with a $50 par value which is convertible into three shares of common stock. The conversion value is $45. What is the current market price of a share of common stock?

Which of the following describes a major way in which currency swaps differ from interest-rate swaps?

A convertible bond is almost always ___________with a call feature.

A firm has an outstanding bond with a $1,000 par value that is convertible into 50 shares of common stock. The bond's conversion ratio is ___________ .

Convertibles can be used as a form of deferred common stock financing.

The market premium may be defined as the amount by which the conversion value exceeds its straight value.

Converting a convertible security is beneficial when the market price of the common stock into which it can be converted is greater than its conversion price.

The market value of a convertible bond will exceed the conversion value or straight bond value, whichever is greater, by an amount called the market premium. This premium exists because

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