Financing With Derivatives

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Questions Bank

The Role and Objective of Financial Management
The Domestic and International Financial Marketplace
Evaluation of Financial Performance
Financial Planning and Forecasting
The Time Value of Money
Fixed Income Securities: Characteristics and Valuation
Common Stock: Characteristics, Valuation, and Issuance
Analysis of Risk and Return
Capital Budgeting and Cash Flow Analysis
Capital Budgeting: Decision Criteria and Real Option Considerations
Capital Budgeting and Risk
The Cost of Capital
Capital Structure Concepts
Capital Structure Management in Practice
Dividend Policy
Working Capital Policy and Short-term Financing
The Management of Cash and Marketable Securities
Management of Accounts Receivable and Inventories
Lease and Intermediate-term Financing
Financing With Derivatives
Risk Management
International Financial Management
Corporate Restructuring
Appendix: Continuous Compounding and Discounting
Appendix: Mutually Exclusive Investments Having Unequal Lives
Appendix: Breakeven Analysis
Appendix: Bond Refunding Analysis
Appendix: Taxes

All Questions

Question 1

Free

Multiple Choice

____ are forms of options.

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Warrants

Convertible securities

Leases

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.

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debenture

warrant

futures contract

extendible note

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Question 3

Free

Multiple Choice

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

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convertible security

warrant

futures contract

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?

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time remaining until expiration date

interest rates

expected stock price volatility

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.

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option premium

option discount

conversion price

exercise price

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Question 6

Multiple Choice

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

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future issuance of common stock

future reduction of outstanding common stock

future issuance of non-convertible debt and preferred stock

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

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-$5

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 .

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conversion ratio, conversion price

conversion premium, exercise price

conversion ratio, common stock market price

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

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exercise premium

investment premium

conversion premium

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.

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smallest, nearly equal to

largest, less than

largest, greater than

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.

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higher, higher

higher, lower

lower, lower

lower, higher

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Question 12

Multiple Choice

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

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longer, lower

shorter, higher

longer, higher

shorter, lower

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Question 13

Multiple Choice

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

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greater, higher

lower, higher

greater, lower

lower, lower

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Question 14

Multiple Choice

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

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conversion value

par value

put price

conversion price

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Question 15

Multiple Choice

The conversion ratio of a convertible security may change when

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a cash dividend is paid

there is a change in the market value of the security

a stock dividend is paid

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:

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cheaper total cost than nonconvertible securities

lower interest payments than nonconvertible securities

sell common stock at a price above current market price

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

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conversion ratio

conversion value

straight-bond value

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

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raising the interest rate

calling the securities for redemption

lowering the dividend on common stock

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

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bond swaps

equity offerings

debt restructurings and bond swaps

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?

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an exercise price that is below the market price of common stock at the time the warrant is issued

typical life of a warrant is between 5 and 10 years

warrant is usually detachable from a debenture or preferred stock

if a warrant is issued as part of a "unit,"it is usually detachable from a debenture or preferred stock

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Financing With Derivatives

____ are forms of options.

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

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

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

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

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

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

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

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

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

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

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

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

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

The conversion ratio of a convertible security may change when

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

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

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

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

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

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

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

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

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

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