Question 1

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

Accepted Answer

A) A convertible bond issue would generally have fewer restrictive covenants than an otherwise identical nonconvertible bond. 
B) Convertible bonds can be issued at a lower coupon compared with otherwise non-convertible bonds. 
C) If the value of a convertible bond exceeds the maximum of its straight bond value or its conversion value,the difference would be referred to as the option value. 
D) Since convertible bonds will be exchanged for common stock,convertible bonds are generally not callable. 
E) More than one of the above is incorrect. 
A) A convertible bond issue would generally have fewer restrictive covenants than an otherwise identical nonconvertible bond. 
B) Convertible bonds can be issued at a lower coupon compared with otherwise non-convertible bonds. 
C) If the value of a convertible bond exceeds the maximum of its straight bond value or its conversion value,the difference would be referred to as the option value. 
D) Since convertible bonds will be exchanged for common stock,convertible bonds are generally not callable. 
E) More than one of the above is incorrect.

Question 2

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

Accepted Answer

A) Cash flow from these securities best match cash flow of the firm. 
B) If the firm does well,convertible bonds will turn out to have been the better alternative versus issuing common stock. 
C) The securities are useful when it is costly to assess the risk of the issuing firm. 
D) The securities may resolve agency problems associated with raising money. 
E) All of the above are sensible explanations. 
A) Cash flow from these securities best match cash flow of the firm. 
B) If the firm does well,convertible bonds will turn out to have been the better alternative versus issuing common stock. 
C) The securities are useful when it is costly to assess the risk of the issuing firm. 
D) The securities may resolve agency problems associated with raising money. 
E) All of the above are sensible explanations.

Question 3

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?

Accepted Answer

A) $11.11 
B) $15.00 
C) $17.78 
D) $20.00 
E) None of the above. 
A) $11.11 
B) $15.00 
C) $17.78 
D) $20.00 
E) None of the above.

Question 4

What is the conversion premium?

Accepted Answer

A) 10.00% 
B) 27.58% 
C) 33.32% 
D) 103.23% 
E) None of the above. 
A) 10.00% 
B) 27.58% 
C) 33.32% 
D) 103.23% 
E) None of the above.

Question 5

What is the conversion value of the bond?

Accepted Answer

A) $25 
B) $40 
C) $750 
D) $1,000 
E) No conversion premium is given. 
A) $25 
B) $40 
C) $750 
D) $1,000 
E) No conversion premium is given.

Question 6

A warrant gives the owner:

Accepted Answer

A) the obligation to sell securities directly to the firm at a fixed price for a specified time. 
B) the right to purchase securities directly from the firm at a fixed price for a specified time. 
C) the obligation to purchase securities directly from the firm at a fixed price for a specified time. 
D) the right to sell securities directly to the firm at a fixed price for a specified time. 
E) None of the above. 
A) the obligation to sell securities directly to the firm at a fixed price for a specified time. 
B) the right to purchase securities directly from the firm at a fixed price for a specified time. 
C) the obligation to purchase securities directly from the firm at a fixed price for a specified time. 
D) the right to sell securities directly to the firm at a fixed price for a specified time. 
E) None of the above.

Question 7

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

Accepted Answer

A) $5.33;75 
B) $8.33;120 
C) $22.00;125 
D) $27.50;135 
E) None of the above. 
A) $5.33;75 
B) $8.33;120 
C) $22.00;125 
D) $27.50;135 
E) None of the above.

Question 8

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.

Accepted Answer

Minimum Value:greater of CV =

Question 9

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

Accepted Answer

A) callable. 
B) convertible. 
C) protected. 
D) putable. 
E) None of the above. 
A) callable. 
B) convertible. 
C) protected. 
D) putable. 
E) None of the above.

Question 10

A firm has 500 shares of stock and 100 warrants outstanding.The warrants are about to expire,and all of them will be exercised.The market value of the firm's assets is $25,000,and the market value of the debt is $8,000.Each warrant gives the owner the right to buy 5 shares at $25 per share.What is the value of a warrant?

Accepted Answer

Value of a warrant to buy 1 sh

Question 11

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?

Accepted Answer

[300,000/(300,000 +

Question 12

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

Accepted Answer

A) With regard to security,most convertible bonds are secured by common stock (i.e. ,they are collateral trust bonds). 
B) For most convertible bonds,the issuing firm can,under certain circumstances,effectively force bondholders to convert to common stock. 
C) When a convertible bond is called,the owner has the option of receiving cash or stock for the bond. 
D) All of the above are incorrect. 
E) All of the above are correct. 
A) With regard to security,most convertible bonds are secured by common stock (i.e. ,they are collateral trust bonds). 
B) For most convertible bonds,the issuing firm can,under certain circumstances,effectively force bondholders to convert to common stock. 
C) When a convertible bond is called,the owner has the option of receiving cash or stock for the bond. 
D) All of the above are incorrect. 
E) All of the above are correct.

Question 13

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

Accepted Answer

A) less than the call price,but greater than the face value. 
B) greater than the call price,but less than straight debt's value. 
C) equal to the face value. 
D) less than straight debt's value,but greater than the call price. 
E) None of the above. 
A) less than the call price,but greater than the face value. 
B) greater than the call price,but less than straight debt's value. 
C) equal to the face value. 
D) less than straight debt's value,but greater than the call price. 
E) None of the above.

Question 14

BrightView Windows issued warrants with an exercise price of $17 for one share per warrant.On May 1,BrightView's common stock is at $20 per share.The lower and upper limits on the warrant value on May 1 are:

Accepted Answer

A) $0 and $3 
B) $0 and $17 
C) $3 and $17 
D) $3 and $20 
E) $17 and $20 
A) $0 and $3 
B) $0 and $17 
C) $3 and $17 
D) $3 and $20 
E) $17 and $20

Question 15

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:

Accepted Answer

A) 37.25%. 
B) 43.33%. 
C) 59.36%. 
D) 66.67%. 
E) None of the above. 
A) 37.25%. 
B) 43.33%. 
C) 59.36%. 
D) 66.67%. 
E) None of the above.

Question 16

An "equity kicker" most often refers to a:

Accepted Answer

A) bond with conversion privileges. 
B) preferred stock offering with conversion privileges. 
C) warrant. 
D) lettered common stock. 
E) None of the above. 
A) bond with conversion privileges. 
B) preferred stock offering with conversion privileges. 
C) warrant. 
D) lettered common stock. 
E) None of the above.

Question 17

Warrants are most often issued in combination with:

Accepted Answer

A) new publicly placed common stock. 
B) new privately placed common stock. 
C) new publicly placed debt. 
D) new privately placed debt. 
E) preferred stock. 
A) new publicly placed common stock. 
B) new privately placed common stock. 
C) new publicly placed debt. 
D) new privately placed debt. 
E) preferred stock.

Question 18

The exercise of warrants creates new shares which:

Accepted Answer

A) increases the total number of shares but does not affect share value. 
B) increases the total number of shares which can reduce an individual share value. 
C) does not change the number of shares outstanding,similar to options. 
D) increases share value because cash is paid into the firm at the time of warrant exercise. 
E) None of the above. 
A) increases the total number of shares but does not affect share value. 
B) increases the total number of shares which can reduce an individual share value. 
C) does not change the number of shares outstanding,similar to options. 
D) increases share value because cash is paid into the firm at the time of warrant exercise. 
E) None of the above.

Question 19

Based on empirical studies,firms tend to call convertible bonds when the conversion value is:

Accepted Answer

A) less than the conversion price. 
B) greater than the straight bond value. 
C) greater than the call price. 
D) less than the face value. 
E) None of the above. 
A) less than the conversion price. 
B) greater than the straight bond value. 
C) greater than the call price. 
D) less than the face value. 
E) None of the above.

Question 20

What is the conversion value of the bond?

Accepted Answer

A) $25 
B) $40 
C) $770 
D) $1,000 
E) No conversion premium is given. 
A) $25 
B) $40 
C) $770 
D) $1,000 
E) No conversion premium is given.

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

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

What is the conversion premium?

What is the conversion value of the bond?

A warrant gives the owner:

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

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.

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

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?

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

BrightView Windows issued warrants with an exercise price of $17 for one share per warrant.On May 1,BrightView's common stock is at $20 per share.The lower and upper limits on the warrant value on May 1 are:

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:

An "equity kicker" most often refers to a:

Warrants are most often issued in combination with:

The exercise of warrants creates new shares which:

Based on empirical studies,firms tend to call convertible bonds when the conversion value is:

What is the conversion value of the bond?

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

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

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

What is the conversion premium?

What is the conversion value of the bond?

A warrant gives the owner:

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

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.

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

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?

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

BrightView Windows issued warrants with an exercise price of $17 for one share per warrant.On May 1,BrightView's common stock is at $20 per share.The lower and upper limits on the warrant value on May 1 are:

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:

An "equity kicker" most often refers to a:

Warrants are most often issued in combination with:

The exercise of warrants creates new shares which:

Based on empirical studies,firms tend to call convertible bonds when the conversion value is:

What is the conversion value of the bond?

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