Saturday, November 9, 2019

Alicia owns a $1,000 face value bond that can be converted into 20 shares of AB Limited stock.

Alicia owns a $1,000 face value bond that can be converted into 20 shares of AB Limited stock. Which one of the following terms refers to these 20 shares? 
 
A. 
conversion premium

B. 
straight bond value

C. 
conversion value

D. 
conversion price

E. 
conversion ratio
Refer to section 24.7


20.
The difference between the conversion price and the current stock price, divided by the current stock price, is called the: 
 
A. 
conversion premium.

B. 
straight bond value.

C. 
conversion value.

D. 
conversion price.

E. 
conversion ratio.
Refer to section 24.7


21.
Latetia owns a convertible bond. Which one of the following terms would describe the value of this bond if it were not convertible? 
 
A. 
conversion premium

B. 
straight bond value

C. 
conversion value

D. 
inverted value

E. 
market value
Refer to section 24.7


22.
Brad owns a convertible bond. Which one of the following terms would apply to the value of this bond if he were to convert it into shares of stock today? 
 
A. 
conversion premium

B. 
straight bond value

C. 
conversion value

D. 
inverted value

E. 
prescribed value
Refer to section 24.7


23.
Which one of the following statements correctly describes your situation as the holder of a European call option? 
 
A. 
You are obligated to buy if the option is exercised.

B. 
You have a right to sell.

C. 
You have a right to buy but only on the expiration date.

D. 
You are obligated to sell if the option is exercised.

E. 
You have a right to buy at any time before the option expires.
Refer to section 24.1

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