Exam 24: Warrants and Convertibles

The holders of Looper Industries bond with a face value of $1,000 can exchange that bond for 20 shares of stock. The stock is selling for $35.00. What is the conversion premium?

Concerning warrants and call options,which of the following statements generally is correct?

A convertible bond has an option value which is equal to:

Kida Consultants has 100,000 shares of stock outstanding. The firm's value net of debt is $2 million. Kida has 1,000 warrants outstanding with an exercise price of $18,where each warrant entitles the holder to purchase one share of stock. Calculate the gain from exercising a single warrant.

From the shareholder's point of view,the optimum time to call a convertible bond is when the bond's conversion value is:

Diamond Drill Inc. has 150,000 shares and 15,000 warrants outstanding. A warrant holder can purchase a new share of stock for five warrants and $5.00 per warrant. The stock is currently selling for $27 per share. If the warrants are all exercised immediately,what would be the market price of the stock?

Explain why there is neither a "Free" nor "Expensive Lunch" when convertible bonds are issued?

Concerning convertible bonds,which of the following statements is not correct?

Diamond Drill Inc. has 150,000 shares and 15,000 warrants outstanding. A warrant holder can purchase a new share of stock for five warrants and $5.00 per warrant. The stock is currently selling for $27 per share. If all warrants are exercised,what will your fraction of ownership be if you owned 20,000 shares originally?

The holders of Xenron Corporation's bond with a face value of $1,000 can exchange that bond for 35 shares of stock. The stock is selling for $22.00. What is the conversion price?

A bond/warrant package is priced to sell at a face value of $1,000. Each bond comes with 50 detachable warrants. A warrant gives the owner the right to buy 1 share of stock at $20 per share. The value of a warrant has been estimated at $2. The bonds mature in 20 years. Similar bonds without warrants yield 10%. What is the bond's annual coupon?

An "equity kicker" most often refers to a:

Diamond Drill Inc. has 150,000 shares and 15,000 warrants outstanding. A warrant holder can purchase a new share of stock for five warrants and $5.00 per warrant. The stock is currently selling for $27 per share. What would your gain per share be from exercising the warrants,assuming all are exercised?

Which of the following would harm the position of a warrant holder?

The holders of Mikayla Corporation's bond with a face value of $1,000 can exchange that bond for 30 shares of stock. The stock is selling for $25.00. What is the conversion value of the bond?

If a corporate security can be exchanged for a fixed number of shares of stock,the security is said to be:

Why are warrants and convertibles issued?

Diamond Drill Inc. has 150,000 shares and 15,000 warrants outstanding. A warrant holder can purchase a new share of stock for five warrants and $5.00 per warrant. The stock is currently selling for $27 per share. The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock. The conversion ratio is:

Kida Consultants currently has 300,000 shares of common outstanding. Firm value net of debt is $3,900,000. Kida has warrants outstanding with an exercise price of $10. How many warrants must the firm have issued if the gain from exercising a single warrant is $8.25?

Concerning convertible bonds,which of the following statements is not correct?