Exam 17: Corporate Securities, Derivatives, and Swaps

The striking price is the price at which the holder of a call option can buy a specified amount of stock at any time prior to the option's expiration date.

Which of the following statements about the notional amount of a currency swap is correct?

When the market price of the common stock exceeds the conversion price, the conversion (or stock)value exceeds the par value of the convertible security.

A conversion feature is an option that is included as part of a common share issue that allows its holder to change the shares into a stated number of preferred shares.

The_____________ value is the price the bond would sell for in the market without the conversionfeature.

In which of the following situations would the swap dealer make a profit of 3 basis points?

An investor is considering buying 500 shares of ABC Company at $32 per share. Analysts agree that the firm's stock price may increase to $45 per share in the next four months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. What profit would the investor realize if the stock price increased to $42 per share?

The notional amount of a vanilla interest-rate swap is the loan amount that the counterparties exchange as part of the deal.

Both warrants and rights result in new capital equity. However, warrants are issued at an exercise price below the prevailing market price of the stock; rights are generally issued at a subscription price above the prevailing market price.

Swap dealers may hedge are not permitted to speculate on the future movements of markets.

Which of the following statements about the notional amount of an interest-rate swap is correct?

A firm has an outstanding bond with a $1,000 par value that is convertible at $40 per share of common stock. If the current market value of common stock per share is $45, the conversion value of the bond is _____________.

Which of the following statements about the term structure of swap rates is correct?

In Canada, all option contracts are issued, guaranteed, and cleared by the Canadian DerivativesClearing Corporation.

Conversion price is the value of a convertible security as measured by the market price of the common stock into which it can be converted.

An advantage of a convertible security is that it provides for deferred common stock financing. The purpose of deferring the sale of common stock is to

Many holders of convertible bonds will not convert when the firm's common stock price exceedsthe conversion price. To protect itself against this behavior, the firm includes _____________on the convertible security.

In an interest-rate swap, the participating companies actually exchange interest payments.

The straight bond value is

While, unlike convertible securities, warrants cannot be called, their limited life stimulates holders to exercise them when the exercise price is below the market price of the firm's stock.