Exam 17: Hybrid and Derivative Securities

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 to purchase three shares of ABC's common stock for $8 per share. The warrant premium is

The dominant organized options exchange in which options are traded is the Chicago Board Options Exchange (CBOE).

In the financial statement of the firm, puts and calls

A firm has an outstanding 15-year convertible bond issue with a $1,000 par value and a stated annual interest rate of 7 percent. The bond is convertible into 50 shares of common stock which has a current market price of $25. A straight bond could have been sold with a 10 percent stated interest rate. The conversion value of the bond is

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

Preferred stock is considered a hybrid security because it blends the characteristics of both bond and equity.

Advantages of leasing from the lessee's perspective include all of the following EXCEPT

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 4 months. As an alternative, the investor could purchase a 120-day call option at a striking price of $30 for $5,000. At what stock price would the investor break even?

A firm currently has outstanding a 9 percent, $1,000 convertible bond. The bond is convertible into 100 shares of common stock at a conversion price of $10 per share and callable at $1,090. The current market price of the firm's stock is $12 per share. The bond holder will most likely

The conversion ratio is the ratio at which a convertible security can be exchanged for a nonconvertible security.

Purchase options are provisions frequently included in both operating and financial leases that allow the lessee to purchase the leased asset at maturity.

The straight bond value is the ________ price at which a convertible bond would be traded.

A firm currently has outstanding a 5 percent, $1,000 convertible bond. The bond is convertible into 25 shares of common stock and callable at $1,050. The current market price of the firm's stock is $41 per share. The bond holder will most likely

The 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.

A capitalized lease is a financial lease that has the present value of all its payments included as an asset and corresponding liability on the firm's balance sheet.

An operating lease need not be capitalized, but its basic features must be disclosed in a footnote to the financial statements.

A firm has an outstanding bond with a $1,000 par value that is convertible at $40 per share of common stock. The bond's conversion ratio is

Tangshan Mining Company has an outstanding issue of convertible bonds with a $1,000 par value. The bonds have a 10 percent coupon rate, have a 10-year maturity, and are convertible into 100 shares of common stock. The yield to maturity on bonds of similar risk is 10 percent and the market price of the firm's common stock is currently $15.00. Based on this information, the conversion value of the bond is

Contingent securities such as common stocks and bonds affect the reporting of a firm's earnings per share (EPS).

Common stock equivalents are all contingent securities that derive a major portion of their value from their conversion privileges or common stock characteristics.