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- Download: http://solutionzip.com/downloads/20-mcq-a-convertible-bond-is-currently-selling-for-945/
- 1.) A convertible bond is currently selling for $945. It is convertible into 15 shares of common which presently sell for $57 per share. What is the conversion premium?
- A. $90
- B. $45
- C. 57 shares
- D. 13 shares
- 2.) The conversion ratio is the:
- A. price at which a convertible security is exchanged into common stock.
- B. ratio of conversion value to market value of a convertible security.
- C. number of shares of common stock into which the convertible may be converted.
- D. ratio of the conversion premium to market value of a convertible security.
- 3.) The conversion premium will be large:
- A. if investors have great expectations for the price of the common stock.
- B. if interest rates decline.
- C. when the conversion value is much greater than the pure bond value.
- D. when the stock price is very stable.
- 4.) A convertible bond is currently selling for $1335. It is convertible into 20 shares of common which presently sell for $56 per share. What is the conversion premium?
- A. $335
- B. $215
- C. 66.74 shares
- D. 23.8 shares
- 5.) A $1,000 par value bond with a conversion price of $40 has a conversion ratio of:
- A. $25.
- B. 25 shares.
- C. $40.
- D. 40 shares.
- 6.) The theoretical floor value for a convertible bond is its:
- A. conversion price.
- B. conversion value.
- C. par value.
- D. pure bond value.
- 7.) The conversion premium is the greatest and the downside risk the smallest when the:
- A. conversion value equals the pure bond value.
- B. conversion value is greater than the pure bond value.
- C. conversion value is less than the pure bond value.
- D. stock price is expected to go up drastically.
- 8.) The interest rate on convertibles is generally __________ the interest rate on similar nonconvertible instruments.
- A. greater than
- B. less than
- C. the same as
- D. at least twice
- 9.) Conversion price is usually set __________ the prevailing market price of the common stock at the time the bond issue is sold.
- A. at
- B. below
- C. above
- D. at one half of
- 10.)The principle device used by the corporation to force conversion is:
- A. setting the conversion price above the current market price.
- B. reducing the amount of interest payments.
- C. buying bonds back at below par value.
- D. a call provision.
- 11.)Mirrlees Corp. has 10,000 6.25% bonds convertible into 40 shares per $1000 bond. Mirrlees has 600,000 outstanding shares. Mirrlees has a tax rate of 40%. The average Aa bond yield at time of issue was 10%. Compute basic earnings per share if after-tax earnings are $750,000.
- A. $0.71
- B. $1.25
- C. $1.33
- D. $1.51
- 12.)Vickrey Technology has had net income of $2,000,000 in the current fiscal year. There are 1,000,000 shares of common stock outstanding along with convertible bonds, which have a total face value of $8 million. The $8 million is represented by 8,000 different $1,000 bonds. Each $1,000 bond pays 3 percent interest. The conversion ratio is 30. The firm is in a 30 percent tax bracket. What is Vickrey’s diluted earnings per share?
- A. $1.75
- B. $1.81
- C. $2.00
- D. None of the above
- 13.)Jacobs and Company has warrants outstanding, which are selling at a $3 premium above intrinsic value. Each warrant allows its owner to purchase one share of common stock at $25. If the common stock currently sells for $28, what is the warrant price?
- A. $6
- B. $10
- C. $12
- D. $14
- 14.)Warrants are:
- A. long-term options to sell shares of the issuing firm’s stock.
- B. fairly stable, low-risk investments.
- C. investments whose value is directly related to the price of the underlying stock.
- D. structured to sell for precisely their intrinsic value.
- 15.)Sen Corporation warrants carry the right to buy 10 shares of Sen common stock at $3.50 per share. The common stock has a current market price of $4.25 per share. What is the intrinsic, or minimum, value of one Sen warrant?
- a.$.75
- b.$7.50
- c.$15
- d.$0
- 16.)A warrant that does NOT expire until several years in the future provides its owner the opportunity to buy a stock. If the stock price rises, the warrant will probably sell for:
- a. less than its intrinsic value
- b. exactly its intrinsic value
- c. more than its intrinsic value
- d. less than or equal to its intrinsic value
- 17.)A contract giving the owner the right to buy or sell an asset at a fixed price for a given period of time is a /an
- a. common stock
- b. options
- c. futures
- d. capital investments
- 18.)The owner of a call has the right:
- a. and the obligation to buy an asset at a given place
- b. and the obligation to sell an asset at a given price
- c. but not the obligation to buy an asset at a given price
- d. but not the obligation to sell an asset at a given price
- 19.)The owner of a put has the right:
- a. and the obligation to buy an asset at a given
- b. and the obligation to sell an asset at a given price
- c. but not the obligation to buy an asset at a given price
- d. but not the obligation to sell an asset at a given price
- 20.)All of the following are advantages to the corporation of issuing convertibles EXCEPT:
- a. provides a low-cost financing alternative for large, high-quality companies
- b. used when believe stock is undervalued
- c. generally lower cost than straight debt
- d. provides access for small co’s to debt market
- Download: http://solutionzip.com/downloads/20-mcq-a-convertible-bond-is-currently-selling-for-945/
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