Financing With Derivatives

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Question 1
Free
Multiple Choice

____ are forms of options.

Choose correct answer/s
A

Warrants

B

Convertible securities

C

Leases

D

Warrants and convertible securities

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Question 2
Free
Multiple Choice

A(n) ____ is a call option issued by a company on its securities, usually common stock.

Choose correct answer/s
A

debenture

B

warrant

C

futures contract

D

extendible note

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Question 3
Free
Multiple Choice

A ____ is a fixed income security with a call option on common stock.

Choose correct answer/s
A

convertible security

B

warrant

C

futures contract

D

derivative security

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Question 4
Free
Multiple Choice

Which of the following (if any) are factors affecting the value of a call option?

Choose correct answer/s
A

time remaining until expiration date

B

interest rates

C

expected stock price volatility

D

all of these factors affect the value of a call option

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Question 5
Free
Multiple Choice

The ____ is the price that the call option buyer pays the writer of the option if the buyer decides to exercise the option.

Choose correct answer/s
A

option premium

B

option discount

C

conversion price

D

exercise price

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Question 6
Multiple Choice

When a company issues convertible securities, its usual intention is:

Choose correct answer/s
A
future issuance of common stock
B
future reduction of outstanding common stock
C
future issuance of non-convertible debt and preferred stock
D
future issuance of preferred stock
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Question 7
Multiple Choice

A warrant has an exercise price of $15. The underlying common stock has a market price of $10. The formula value of a warrant would be

Choose correct answer/s
A
$5
B
$0
C
-$5
D
cannot be determined from the information given
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Question 8
Multiple Choice

The conversion value (i.e., stock value) of a convertible bond is defined as the ____ times the ____ .

Choose correct answer/s
A
conversion ratio, conversion price
B
conversion premium, exercise price
C
conversion ratio, common stock market price
D
conversion ratio, exercise price
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Question 9
Multiple Choice

The difference between the market value of a convertible bond and the higher of its conversion or straight-bond value is the

Choose correct answer/s
A
exercise premium
B
investment premium
C
conversion premium
D
liquidation premium
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Question 10
Multiple Choice

The conversion premium of a convertible bond tends to be ____ when the conversion value is ____ the straight-bond value.

Choose correct answer/s
A
smallest, nearly equal to
B
largest, less than
C
largest, greater than
D
largest, nearly equal to
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Question 11
Multiple Choice

All other things being equal, the ____ the exercise price, given the stock price, the ____ is the call option value.

Choose correct answer/s
A
higher, higher
B
higher, lower
C
lower, lower
D
lower, higher
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Question 12
Multiple Choice

The ____ the time remaining before an option expires, the ____ the option value.

Choose correct answer/s
A
longer, lower
B
shorter, higher
C
longer, higher
D
shorter, lower
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Question 13
Multiple Choice

The ____ the expected stock price volatility, the ____ the value of the call option.

Choose correct answer/s
A
greater, higher
B
lower, higher
C
greater, lower
D
lower, lower
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Question 14
Multiple Choice

The price at which convertible securities are exchangeable for common stock is the

Choose correct answer/s
A
conversion value
B
par value
C
put price
D
conversion price
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Question 15
Multiple Choice

The conversion ratio of a convertible security may change when

Choose correct answer/s
A
a cash dividend is paid
B
there is a change in the market value of the security
C
a stock dividend is paid
D
there is a rights offering
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Question 16
Multiple Choice

All of the following are reasons why companies issue convertible securities except:

Choose correct answer/s
A
cheaper total cost than nonconvertible securities
B
lower interest payments than nonconvertible securities
C
sell common stock at a price above current market price
D
deferred issuance of common stock
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Question 17
Multiple Choice

The market value of a convertible debt issue is usually above the

Choose correct answer/s
A
conversion ratio
B
conversion value
C
straight-bond value
D
higher of either the conversion value or the straight-bond value
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Question 18
Multiple Choice

Conversion of a convertible security may be forced by the issuing company by

Choose correct answer/s
A
raising the interest rate
B
calling the securities for redemption
C
lowering the dividend on common stock
D
none of these are methods of forcing conversion
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Question 19
Multiple Choice

As a financing device, warrants have been used in connection with

Choose correct answer/s
A
bond swaps
B
equity offerings
C
debt restructurings and bond swaps
D
bond swaps, equity offerings, and debt restructurings
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Question 20
Multiple Choice

Which of the following is not a common feature of financing with warrants?

Choose correct answer/s
A
an exercise price that is below the market price of common stock at the time the warrant is issued
B
typical life of a warrant is between 5 and 10 years
C
warrant is usually detachable from a debenture or preferred stock
D
if a warrant is issued as part of a "unit,"it is usually detachable from a debenture or preferred stock
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