Exam 24: Warrants and Convertibles

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. A firm has 100 shares of stock and 40 warrants outstanding. The warrants are about to expire,and all of them will be exercised. The market value of the firm's assets is $2,000,and the firm has no debt. Each warrant gives the owner the right to buy 2 shares at $15 per share. What is the price per share of the stock?

A convertible bond is selling for $800. It has 10 years to maturity,a $1,000 face value,and a 10% coupon. Similar nonconvertible bonds are priced to yield 14%. The conversion price is $50 per share. The stock currently sells for $31.375 per share. The conversion premium is:

The gain from exercising a warrant is similar to the gain from exercising a call option except:

A warrant gives the owner:

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 would the conversion price and conversion ratio be if Mikayla had a 4 for 1 stock split?

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 premium?

A firm has 2,000 shares of stock and 200 warrants outstanding. The warrants are about to expire,and all of them will be exercised. The market value of the firm's assets is $14,000,and the firm has no debt. Each warrant gives the owner the right to buy 1 share at $5. What is the warrant's effective exercise price?

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 would the conversion price and conversion ratio be if Looper Industries had a 4 for 1 stock split?

Which of the following would not describe the difference between warrants and call options?

A convertible bond is selling for $800. It has 10 years to maturity,a $1000 face value,and a 10% coupon paid semi-annually. Similar nonconvertible bonds are priced to yield 14%. The conversion price is $50 per share. The stock currently sells for $31.375 per share. Determine the bond's option premium.

A convertible preferred stock is similar to a convertible bond except:

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

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 would the conversion price and conversion ratio be if Xenron had a 3 for 1 stock split?

A firm has experienced a significant decrease in share value. In retrospect,which of the following securities would have been best to have been issued prior to the change in share value?

Which of the following would not be a sensible explanation of why convertibles and warrants are issued if markets are efficient?

Issuing convertible bonds or bonds with warrants is useful for a company of unknown risk because:

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 value of the bond?

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 premium?