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Multiple Choice
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1

The conversion ratio is the:
A)ratio of the conversion premium to market value of the convertible security.
B)price at which a convertible security is exchanged for common stock.
C)number of shares of common stock in to which the convertible may be converted.
D)none of the above
2

The floor value for a convertible bond is:
A)the conversion value
B)the pure bond value
C)the conversion price
D)none of the above
3

A convertible security is:
A)a security that can be converted into debt at the option of the owner.
B)a security that can be converted into preferred stock at the option of the owner.
C)a security that can be converted into common stock at the option of the owner.
D)none of the above
4

The conversion price is usually _______ than the market price of the common stock at the time the bond issue is sold.
A)higher
B)lower
C)the same as
D)none of the above
5

The interest rate on convertibles is generally __________ the interest rate on nonconvertible securities.
A)greater than
B)less than
C)the same as
D)none of the above
6

The conversion premium will be large:
A)if investors think the price of the stock will rise.
B)if interest rates decline
C)when the stock price is falling
D)none of the above
7

The price of a convertible bond:
A)has upside and downside limits
B)has only downside limits
C)has only upside limits
D)none of the above
8

Warrants are:
A)investments whose value is directly related to the price of the underlying stock.
B)the same as call options
C)the same as put options
D)none of the above
9

Which of the following is an advantage of a convertible bond?
A)downside protection is ineffectual if the bond is bought at a large premium over par value
B)conversion may be forced on the bondholder by call provisions on the convertible bond
C)there is downside risk for the investor
D)none of the above
10

A step-up in the conversion price refers to:
A)the ability of the company to step up the maturity of the bond to an earlier date.
B)a shorter time to call
C)the provision that decreases the conversion ratio the longer the bond is held
D)none of the above





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