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LOS j: Describe and evaluate a convertible bond and its various component values.
Q1. For a convertible bond, which of the following is least accurate?
A) The conversion ratio times the price per share of common stock is a lower limit on the bond's price.
B) The issuer can decide when to convert the bonds to stock.
C) A convertible bond may be putable.
Q2. Which of the following is equal to the value of a noncallable / nonputable convertible bond? The value of the corresponding:
A) callable bond plus the value of the call option on the stock.
B) straight bond plus the value of the call option on the stock.
C) straight bond.
Q3. For a convertible bond without any other options, the call feature implied by the convertibility feature will do all of the following EXCEPT:
A) increase the value of the bond over that of a comparable option-free bond.
B) place a lower limit on the possible values of the bond.
C) cause negative convexity.
Q4. Which of the following factors must be included in an option-based valuation approach to price a callable convertible bond?
A) Stock prices only.
B) Interest rates, stock prices and their correlation.
C) Interest rates and stock prices only.
Q5. A convertible bond has a conversion ratio of 12 and a straight value of $1,010. The market value of the bond is $1,055, and the market value of the stock is $75. What is the market conversion price and premium over straight value of the bond?
Market conversion price Premium over straight value
A) $87.92 0.0446
B) $75.00 0.1029
C) $84.17 0.1222
Q6. For a convertible bond with a call provision, with respect to the bond's convertibility feature and the call feature, the Black-Scholes option model can apply to:
A) both features.
B) only one feature.
C) neither features.
Q7. What is the market conversion price of a convertible security?
A) The value of the security if it is converted immediately.
B) The price that an investor pays for the common stock in the market.
C) The price that an investor pays for the common stock if the convertible bond is purchased and then converted into the stock.
Q8. Suppose the market price of a convertible security is $1,050 and the conversion ratio is 26.64. What is the market conversion price?
A) $1,050.00.
B) $39.41.
C) $26.64.
Q9. Which of the following statements is most accurate concerning a convertible bond? A convertible bond's value depends:
A) on both interest rate changes and changes in the market price of the stock.
B) only on interest rate changes.
C) only on changes in the market price of the stock.
Q10. Which of the following correctly describes one of the basic features of a convertible bond? A convertible bond is a security that can be converted into:
A) common stock at the option of the issuer.
B) another bond at the option of the issuer.
C) common stock at the option of the investor. | 
发表于 2009-3-20 17:44
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