Exam 17: Hybrid and Derivative Securities

Renewal options normally require the lessor to maintain the assets and to make insurance and tax payments.

A firm can raise capital by issuing securities such as convertibles and warrants but a firm has nothing to do with the creation of options to raise capital.

Assets leased under ________ leases generally have a usable life longer than the term of the lease.

When the price of the firm's common stock ________ the conversion price, the market price of the convertible security will normally ________ to a level close to its conversion value.

The lease arrangement has many more restrictive covenants than those normally included as part of a long-term loan.

One of the major reasons for attaching a stock purchase warrant is that investors do not require the issuing firm to pay an interest rate as high as on a security that does not have an attached warrant.

Convertible preferred stock is normally converted into

A ________ allows the firm to force conversion.

If an investor buys a 100-share put option for $150 with an exercise price of $38 and the underlying price per share of the stock at expiration is $39, what is the amount of profit or loss, ignoring brokerage fees?

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

The available options of the firm with an overhanging issue to finance the call include all of the following EXCEPT

________ lease is a contractual arrangement whereby the lessee agrees to make periodic payments to the lessor for five or fewer years for an asset's services. This type of lease may also be canceled at the option of the lessee.

For puts and calls, the exercise price is called

The following securities are all popular hybrid securities EXCEPT

A ________ gives the holder an option to purchase a certain number of shares of common stock at a specified price over a certain period of time.

Mia's Pet Store has warrants that allow the purchase of two shares of its outstanding common stock at $30 per share. The common stock price per share is $33 and the market value of the warrant is $8. (a) Calculate the theoretical value of the warrant. (b) Calculate the market premium for the warrant.

A hybrid security is neither debt nor equity but instead derives its value from an underlying asset.

An operating lease is often also referred to as a capital lease.

The ________ value is the price the bond would sell for in the market without the conversion feature.

When a firm becomes bankrupt or is reorganized, the maximum claim of lessors against the corporation is three years of lease payments.