:All of the following statements regarding convertible bonds are true except Holders of convertible bonds can choose how many shares of stock to receive at conversion A Holders of convertible bonds can choose when to convert to stock .BO Holders of convertible bonds have the option to not convert and continue receiving bond interest payments and par value at maturity .C O Holders of convertible bonds have the potential to profit from increases in stock price.D O

:All of the following statements regarding convertible bonds are true except Holders of convertible bonds can choose how many shares of stock to receive at conversion A Holders of convertible bonds can choose when to convert to stock .BO Holders of convertible bonds have the option to not convert and continue receiving bond interest payments and par value at maturity .C O Holders of convertible bonds have the potential to profit from increases in stock price.D O

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Convertible bonds are: I. options attached to bonds that give the bond holder the right to purchase stock at a preset price without giving up the bond. II. bonds in which the issue matures (converts) a little each year. III. bonds collateralized with certain types of automobiles. IV. bonds that may be converted to a certain number of shares of stock determined by the conversion ratio. a. I only b. I and II only c. I, II, and III d. IV only e. I and III only
Which of the following statements about convertible bonds is correct? Before conversion, convertible bonds are treated as equity because they can be potentially converted to equity shares. Holders are more likely to convert bonds to equity shares if stock price declines significantly. Upon conversion, a gain or loss will be recognized. The company who sells convertible bonds will pay interest at a lower interest rate.
3. Convertible bonds, warrants, and other exotic bond features As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock. Which of the following best describes the difference between a convertible bond and a warrant? Convertible bonds give the investor the option to buy shares at a certain price, whereas warrants give the investor the option to exchange bonds for shares at a certain price. Convertible bonds give the investor the option to exchange bonds for shares at a certain price, whereas warrants give the investor the option to buy shares at a certain price. Consider the case of an investor, Nazim: Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when: He has reinvestment options with higher yields. He has reinvestment options with lower yields. Nazim also recently bought bonds with a clause stating that…
When bondholders decide to exercise their convertible bonds, the company values the common stock at the ________. Assume there is no beneficial conversion option at bond issue. Group of answer choices market value of the stock par value of the stock carrying value of the bonds par value of the bonds
Which statement is not correct? A convertible bond is like a bond with a call option. The amount of DPS has negative impact on favorable income differential per share of a convertible bond. The value of a convertible bond cannot be less than its straight value. Exchangeable bonds give the bondholder the right to exchange the bonds for the common stock of the issuer of the bond. The conversion value of a convertible bond is directly related to its market price of common stock.
A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is Dilutive Antidilutive a. No No b. Yes No c. Yes Yes d. No Yes
When dilutive convertible bonds are the only potential ordinary shares, the diluted earnings per share (EPS) will be __________if the bonds are actually converted compared to when they are not converted.A. lowerB. higherC. the sameD. incomparable
What is a convertible bond? If a company decidesto raise capital by issuing convertible bonds, howwould the terms on the bond be set? Considerspecifically the maturity, coupon rate, and callfeatures of the bond, as well as the conversionprice (or conversion ratio), together with any otherparameters required for the analysis.
4. Convertible bonds:a. Allow the security holder to convert the bond into cash at any time during the life of the bond.b. Allow the security holder to convert the bond into products or services that the company sells.c. Allow the security holder to convert the bond to another security, usually equity, according to some pre-specified terms.d. Allow the security holder to convert the bond into another bond with a higher coupon rate if interest rateson bonds increase before the convertible bond matures.e. None of the above.5. The same firm issues two different bonds. The bonds are identical in every respect except for their time tomaturity. Bond A matures in 7 years and Bond B matures in 5 years. Which bond has a higher price?a. Bond Ab. Bond Bc. Both have the same value.d. One must know YTM and coupon rate to answer the question.e. One must know the compounding frequency to answer the question. 6. When the yield to maturity (YTM) for a particular bond is greater than its coupon…
For the following three types of dilutive securities: convertible bonds, convertible preferred stock, stock options which one (ones) involves security holders paying cash upon the conversion/exercise of the security (securities)? Enter 1, 2, 3, or 4 that represents the correct answer. 1. Convertible bonds and stock options. 2. Convertible bonds and convertible preferred stock. 3. Stock options only. 4. Convertible bonds only.
1. A debenture is: Group of answer choices a secured bond a callable bond an unsecured bond a redeemable bond 2. A convertible bond Group of answer choices comes with a retractable top can be called in for early retirement can be turned in by the investor for early retirement can be swapped for other securities of the issue, typically stock 3. The coupon interest rate: Group of answer choices is the same as the effective interest rate is the same as the market interest rate is smaller than the stated interest rate. is the same as the stated interest rate 4. A bond has a face value of $10,000,000. It has a stated interest rate of 5% and a market interest rate of 6%. It sold for $900,000. It pays interest once a year on December 31. How much interest will the company pay each year? Group of answer choices $500,000 $450,000 $600,000 $540,000 5. A bond has a stated interest rate of 13% and a market…
When computing diluted earnings per share (EPS), convertible bonds are:A. ignored.B. assumed converted whether they are dilutive or antidilutive.C. assumed converted only if they are antidilutive.D. assumed converted only if they are dilutive.