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Chapter 22: Convertibles, Exchangeables, and Warrants

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1. A $500 par-value convertible debenture is selling at $520. If the conversion ratio is 20, what is the conversion price?

$19.23

$20.18

$25.00

$26.00

2. A company has just issued convertible bonds with $1,000 par value and a conversion ratio of 40. Which of the following is most likely to be the market price per share of the company's common stock at present?

Under $25.

$25.

Between $25 and $30.

Above $30.

3. If a warrant carries a right to buy one share of common stock and is exercisable at $20 per common share while the market price of a share is $30, the theoretical value of the warrant is:

$20.

$10.

$5.

$0.

4. An exchangeable bond:

can be exchanged for another bond of a different company.

can be exchanged for another bond of the same company.

involves the common stock of another company.

is the same thing as a convertible bond.

5. The call price of a convertible bond is generally

equal to the conversion ratio times the market price per share of common stock.

greater than the face value of the bond.

equal to the face value of the bond divided by the conversion ratio.

equal to the value at maturity.

6. A(n) is a bond that may be exchanged for common stock of the same corporation.

exchangeable bond

debenture

convertible bond

warrant

7. A warrant is a relatively option to purchase at a specified exercise price over a specified period of time.

short-term; bonds

long-term; bonds

short-term; common stock

long-term; common stock

8. Some options have a current theoretical value and yet .

that is negative; sell for positive prices

that is positive; have a zero current price

of zero; sell for positive prices

all of the above

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