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LOS k: Compare and contrast the risk-return characteristics of a convertible bond to the risk-return characteristics of ownership of the underlying common stock.
Q1. Which of the following scenarios will lead to a convertible bond underperforming the underlying stock? The:
A) stock price is stable.
B) stock price rises.
C) stock price falls.
Q2. The primary benefit of owning a convertible bond over owning the common stock of a corporation is the:
A) bond has more upside potential.
B) conversion premium.
C) bond has lower downside risk.
Q3. Suppose that the stock price of a common stock increases by 10%. Which of the following is most accurate for the price of the recently issued convertible bond? The value of the convertible bond will:
A) increase by 10%.
B) increase by less than 10%.
C) remain unchanged.
Q4. How do the risk-return characteristics of a newly issued convertible bond compare with the risk-return characteristics of ownership of the underlying common stock? The convertible bond has:
A) lower risk and higher return potential.
B) lower risk and lower return potential.
C) higher risk and higher return potential. | 
发表于 2009-3-20 17:48
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