Multiple choice
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Need assistance once again, answered 6 questions incorrectly. Need to know what the correct answer should have been.
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In my homework, I got six wrong answers. I have highlighted my answers. Please review these questions and tell me what the correct answers should have been.
1. Which of the following is true.
(a) As the price of common stock increases, the market price of a convertible bond and the conversion premium increase
(b) As the price of common stock increases, the market price of a convertible bond and the conversion value increase
(c) As the price of common stock increases, the conversion value and the floor price increase.
(d) Two of the above are true
2. If the price of common stock associated with a convertible bond is less than the conversion price:
(a) The bond will sell as its pure bond value
(b) The bond will sell at its par value
(c) The bond will sell at its conversion value
(d) There is not enough information to tell what the bond price will be
3. Options contracts contrast with futures because:
(a) Options are not traded on organized exchanges
(b) Options do create an obligation for the owner of the instrument
(c) Options are derivatives
(d) None of the above
4. Which of the following is not a characteristic of convertible bond issues?
(a) The average size of the offering is small
(b) A 15-20% conversion premium at time of issue is common
(c) Large companies will billions of dollars in sales and assets are the primary issuers
(d) Primary issuers tend not to have less than AAA credit ratings
5. A disadvantage to the investor of a convertible bond is that:
(a) The stock price may never rise above conversion price
(b) If interest rate rise, the pure bond value (floor price) will decline
(c) The interest rate on convertibles is generally one-third below the coupon rate on straight bonds of similar risk
(d) All of these are disadvantages
6. What of the following is true about warrants?
(a) At high prices, the warrant premium is high
(b) A rising stock price is usually followed by an increase in the price of the warrant
(c) (a) and (b) are true
(d) None of these are true
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