Question

1. Which of the following does not appear in the share structure of a firm?
a. Preferred shares
b. Common shares
c. Restricted shares
d. None of the above

2. Which of the following statements about preferred shares is false?
a. Retractable preferred shares allow the shareholders to bring forward the maturity date.
b. The most common preferred shares in Canada are straight preferred shares.
c. Preferred shareholders can force bankruptcy if the firm defaults on the dividend payment.
d. Floating rate preferred share dividends are reset periodically.

3. A(n)_____is a bond that may be exchanged for the common stock of the same corporation.
a. Exchangeable bond
b. Retractable bond
c. Convertible bond
d. Warrant

4. Which of the following statements is true?
a. Bonds are exchanged for common shares when convertibles are converted.
b. The current market price is paid in cash when warrants are exercised.
c. Debt is exchanged for common shares when its attached warrant is exercised.
d. A conversion ratio is not specified in convertibles.

5. Which of the following is a correct ranking of after-the-fact best financing choices, assuming that the share price increases beyond the conversion price?
a. Debt, convertibles, common shares, and preferred shares
b. Preferred shares, common shares, debt, and convertibles
c. Preferred shares, common shares, convertibles, and debt
d. Debt, convertibles, preferred shares, and common shares

6. Assume a warrant carries a right to buy two shares of common stock at $20 per share. If the market price of a share is $30, what is the theoretical value of the warrant?
a. $20
b. $10
c. $5
d. $0

7. A convertible bond selling for $1,000 can be converted to 20 shares of common stock that is currently selling for $55 per share. What is most likely to happen?
a. The bondholder will choose not to convert because the bond is worth more than the common shares.
b. The bondholder will choose to convert.
c. The stock price will go down to $50.
d. It is impossible to predict using only the information provided.

8. A company has just issued convertible bonds with a face value of $1,000 and a conversion ratio of 50. Which of the following is most likely to be the current price per share of the company’s common stock?
a. Under $20
b. $20
c. Between $20 and $40
d. Above $40

9. Which of the following is not one of the factors used to judge whether a security is debt or equity?
a. Subordination
b. Legal
c. Subjective
d. Coupon payment

10. Which of the following statements is false?
a. A hard retractable means preferred shares must be paid off in cash.
b. Commodity bonds help commodity producers to control the commodity price risks.
c. Real return bonds are tied to the CPI.
d. Preferred securities are another name for preferred shares.

11. What is the correct ranking of cost from the highest to the lowest?
a. Common shares, convertible preferred shares, straight preferred shares
b. Convertible preferred shares, convertible bonds, and straight preferred shares
c. Medium-term note debentures, bank loans, mortgage debt
d. Common shares, long-term unsecured debt, mortgage debt



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  • CreatedFebruary 25, 2015
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