Question 1

What would your gain per share be from exercising the warrants,assuming all are exercised?

Accepted Answer

A) $0.00 per share 
B) $1.96 per share 
C) $2.00 per share 
D) $25.00 per share 
E) $27.00 per share 
A) $0.00 per share 
B) $1.96 per share 
C) $2.00 per share 
D) $25.00 per share 
E) $27.00 per share D

Question 2

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock.The conversion price is:

Accepted Answer

A) $25. 
B) $40. 
C) $100. 
D) Depends on the current market price of the bond. 
E) None of the above. 
A) $25. 
B) $40. 
C) $100. 
D) Depends on the current market price of the bond. 
E) None of the above. B

Question 3

What is the conversion premium?

Accepted Answer

A) 10.25% 
B) 35.00% 
C) 42.86% 
D) 142.86% 
E) None of the above. 
A) 10.25% 
B) 35.00% 
C) 42.86% 
D) 142.86% 
E) None of the above. C

Question 4

If all warrants are exercised,what will your fraction of ownership be if you owned 20,000 shares originally?

Accepted Answer

A) 12.12% 
B) 13.07% 
C) 13.33% 
D) 14.04% 
E) Without knowing the exercise price the percent cannot be determined. 
A) 12.12% 
B) 13.07% 
C) 13.33% 
D) 14.04% 
E) Without knowing the exercise price the percent cannot be determined.

Question 5

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

Accepted Answer

A) $15.0;120 
B) $12.5;80 
C) $12.5;120 
D) $15.0;80 
E) None of the above. 
A) $15.0;120 
B) $12.5;80 
C) $12.5;120 
D) $15.0;80 
E) None of the above.

Question 6

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

Accepted Answer

A) The issue procedures for both are quite similar. 
B) When a call option is exercised,the firm must issue new stock. 
C) When a warrant is exercised,existing stock changes hands. 
D) Exercise of a call option does not affect share value,but warrant exercise does. 
E) None of the above is correct. 
A) The issue procedures for both are quite similar. 
B) When a call option is exercised,the firm must issue new stock. 
C) When a warrant is exercised,existing stock changes hands. 
D) Exercise of a call option does not affect share value,but warrant exercise does. 
E) None of the above is correct.

Question 7

A convertible bond is selling for $993.It has 15 years to maturity,a $1,000 face value,and an 8% coupon paid semi-annually.Similar non-convertible bonds are priced to yield 8.5%.The conversion ratio is 20.The stock currently sells for $47.50 per share.Calculate the convertible bond's option value.

Accepted Answer

Value of the Straight Bond = $

Question 8

A firm has experienced a significant increase 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?

Accepted Answer

A) Common stock 
B) Bond/warrant package 
C) Convertible preferred stock 
D) Straight bonds 
E) Convertible bonds 
A) Common stock 
B) Bond/warrant package 
C) Convertible preferred stock 
D) Straight bonds 
E) Convertible bonds

Question 9

A convertible bond is selling for $1,222.70.It has 10 years to maturity,a $1,000 face value,and a 10% coupon paid semi-annually.Similar non-convertible bonds are priced to yield 8%.The conversion ratio is 40.The stock currently sells for $30.125 per share.Calculate the convertible bond's option value.

Accepted Answer

Value of the Straight Bond = $

Question 10

A convertible bond has an 8% annual coupon and 15 years to maturity.The face value is $1,000 and the conversion ratio is 40.The stock currently sells for $20.875 per share.Similar nonconvertible bonds are priced to yield 9%.The value of the convertible bond is at least:

Accepted Answer

A) $835.00. 
B) $919.39. 
C) $1,000.00. 
D) $1,570.11. 
E) None of the above. 
A) $835.00. 
B) $919.39. 
C) $1,000.00. 
D) $1,570.11. 
E) None of the above.

Question 11

What is the conversion price?

Accepted Answer

A) $20.00 
B) $33.33 
C) $50.00 
D) $1,000.00 
E) No conversion premium is given. 
A) $20.00 
B) $33.33 
C) $50.00 
D) $1,000.00 
E) No conversion premium is given.

Question 12

Illustrate and explain how a convertible bond value is based on both debt and equity value.What is the option value?

Accepted Answer

Refer to page 759-760,Figures 24.2 and 2

Question 13

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

Accepted Answer

A) The value of a convertible bond will generally be greater than its straight bond value. 
B) The value of a convertible bond will generally be greater than its conversion value. 
C) The difference between the conversion value and the straight bond value is the conversion or option premium. 
D) The coupon rate on a nonconvertible bond will generally exceed the coupon rate on an otherwise identical convertible bond. 
E) All of the above are correct. 
A) The value of a convertible bond will generally be greater than its straight bond value. 
B) The value of a convertible bond will generally be greater than its conversion value. 
C) The difference between the conversion value and the straight bond value is the conversion or option premium. 
D) The coupon rate on a nonconvertible bond will generally exceed the coupon rate on an otherwise identical convertible bond. 
E) All of the above are correct.

Question 14

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.

Accepted Answer

(100,000/101,000)[ (

Question 15

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

Accepted Answer

A) a 3 for 1 stock split 
B) a large stock dividend of 20% 
C) a large cash dividend 
D) listing of the warrants on the NYSE 
E) None of the above would harm the warrant holders. 
A) a 3 for 1 stock split 
B) a large stock dividend of 20% 
C) a large cash dividend 
D) listing of the warrants on the NYSE 
E) None of the above would harm the warrant holders.

Question 16

What is the conversion price?

Accepted Answer

A) $22.00 
B) $28.57 
C) $35.00 
D) $1,000.00 
E) No conversion premium is given. 
A) $22.00 
B) $28.57 
C) $35.00 
D) $1,000.00 
E) No conversion premium is given.

Question 17

Transfer or expropriation of wealth from bondholders to stockholders is less likely to occur when:

Accepted Answer

A) subordinated straight debt is issued because there are other senior bondholders to protect them. 
B) convertible debt is issued because the equity component will reduce these agency costs when value is shared. 
C) convertible debt is issued because the holders can more readily sue when a high-risk project is undertaken. 
D) subordinated debt is issued because monitoring is much easier when subordinated straight debt is issued. 
E) None of the above. 
A) subordinated straight debt is issued because there are other senior bondholders to protect them. 
B) convertible debt is issued because the equity component will reduce these agency costs when value is shared. 
C) convertible debt is issued because the holders can more readily sue when a high-risk project is undertaken. 
D) subordinated debt is issued because monitoring is much easier when subordinated straight debt is issued. 
E) None of the above.

Question 18

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

Accepted Answer

A) $7.33;75 
B) $9.52;105 
C) $22.00;25 
D) $28.57;35 
E) None of the above. 
A) $7.33;75 
B) $9.52;105 
C) $22.00;25 
D) $28.57;35 
E) None of the above.

Question 19

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

Accepted Answer

A) the market value of the convertible bond minus the straight bond value. 
B) The market value of the convertible bond minus the conversion value. 
C) the market value of the convertible bond minus the conversion premium. 
D) the market value of the convertible bond minus the maximum of the straight bond value or conversion value. 
E) None of the above. 
A) the market value of the convertible bond minus the straight bond value. 
B) The market value of the convertible bond minus the conversion value. 
C) the market value of the convertible bond minus the conversion premium. 
D) the market value of the convertible bond minus the maximum of the straight bond value or conversion value. 
E) None of the above.

Question 20

What is the conversion price?

Accepted Answer

A) $25.00 
B) $33.33 
C) $35.00 
D) $1,000.00 
E) No conversion premium is given. 
A) $25.00 
B) $33.33 
C) $35.00 
D) $1,000.00 
E) No conversion premium is given.

What would your gain per share be from exercising the warrants,assuming all are exercised?

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock.The conversion price is:

What is the conversion premium?

If all warrants are exercised,what will your fraction of ownership be if you owned 20,000 shares originally?

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

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

A convertible bond is selling for $993.It has 15 years to maturity,a $1,000 face value,and an 8% coupon paid semi-annually.Similar non-convertible bonds are priced to yield 8.5%.The conversion ratio is 20.The stock currently sells for $47.50 per share.Calculate the convertible bond's option value.

A firm has experienced a significant increase 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?

A convertible bond has an 8% annual coupon and 15 years to maturity.The face value is $1,000 and the conversion ratio is 40.The stock currently sells for $20.875 per share.Similar nonconvertible bonds are priced to yield 9%.The value of the convertible bond is at least:

What is the conversion price?

Illustrate and explain how a convertible bond value is based on both debt and equity value.What is the option value?

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

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.

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

What is the conversion price?

Transfer or expropriation of wealth from bondholders to stockholders is less likely to occur when:

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

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

What is the conversion price?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Derivatives and Hedging Risk

International Corporate Finance

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Exam 24: Warrants and Convertibles

What would your gain per share be from exercising the warrants,assuming all are exercised?

The holder of a $1,000 face value bond can exchange the bond any time for 25 shares of stock.The conversion price is:

What is the conversion premium?

If all warrants are exercised,what will your fraction of ownership be if you owned 20,000 shares originally?

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

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

A convertible bond is selling for $993.It has 15 years to maturity,a $1,000 face value,and an 8% coupon paid semi-annually.Similar non-convertible bonds are priced to yield 8.5%.The conversion ratio is 20.The stock currently sells for $47.50 per share.Calculate the convertible bond's option value.

A firm has experienced a significant increase 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?

A convertible bond has an 8% annual coupon and 15 years to maturity.The face value is $1,000 and the conversion ratio is 40.The stock currently sells for $20.875 per share.Similar nonconvertible bonds are priced to yield 9%.The value of the convertible bond is at least:

What is the conversion price?

Illustrate and explain how a convertible bond value is based on both debt and equity value.What is the option value?

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

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.

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

What is the conversion price?

Transfer or expropriation of wealth from bondholders to stockholders is less likely to occur when:

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

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

What is the conversion price?

Introduction to Corporate Finance

Financial Statements and Cash Flow

Financial Statements Analysis and Long-Term Planning

Net Present Value and Other Investment Rules

Interest Rates and Bond Valuation

Risk and Return: Lessons From Market History

Return and Risk: the Capital Asset Pricing Model

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Efficient Capital Markets and Behavioral Challenges

Long-Term Financing: an Introduction

Raising Capital

Options and Corporate Finance

Options and Corporate Finance: Extensions and Applications

Derivatives and Hedging Risk

International Corporate Finance

Filters