Ch.14&15
Common features of preferred stock include Select one: a. fixed, cumulative dividends b. variable, cumulative dividends c. fixed, non-cumulative dividends d. variable, non-cumulative dividends
A
The price of a convertible bond is often 1. greater than its value as stock 2. less than its value as stock 3. greater than its value as debt 4. less than its value as debt Select one: a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4
A
Convertible bonds have 1. an indenture 2. perpetual life 3. a specified conversion price Select one: a. 1 and 2 b. 1 and 3 c. 2 and 3 d. 1, 2, and 3
B
A convertible bond may be converted at the firm's option into common stock. Select one: True False
False
As interest rates increase, the firm may call its convertible bonds to avoid paying the higher interest rates. Select one: True False
False
If a bond lacks a conversion feature, 1. the bond would have a lower coupon 2. the bond would have a higher coupon 3. the price of the bond would be more responsive to changes in interest rates 4. the price of the bond would be less responsive to changes in interest rates Select one: a. 1 and 3 b. 1 and 4 c. 2 and 3 d. 2 and 4
C
If interest rates increase, Select one: a. the prices of bonds and preferred stock increase b. the price of bonds increases but the price of preferred stock decreases c. the prices of bonds and preferred stock decline d. the price of bonds decreases but the price of preferred stock increases
C
If a $1,000 convertible bond may be converted into 25 shares, the exercise price is $50 a share. Select one: True False
False
One measure of the safety of a preferred stock's dividend is the ratio of dividends to earnings before interest and taxes. Select one: True False
False
As the price of common stock rises, Select one: a. the value of convertible bonds and convertible preferred stock declines b. the value of convertible bonds falls but convertible stock rises c. the value of convertible bonds rises but convertible preferred stock falls d. the value of convertible bonds and convertible preferred stock rises
D
The dividend paid by a preferred stock is usually Select one: a. tax deductible b. variable c. paid in stock d. fixed
D
A convertible bond's value fluctuates with the price of the stock into which the bond may be converted. Select one: True False
True
As the price of the stock rises, the probability that a convertible bond will be called increases. Select one: True False
True
Convertible bonds tend to pay less interest than comparable non-convertible bonds. Select one: True False
True
If a firm misses a payment for a non-cumulative preferred stock, the dividend never has to be paid. Select one: True False
True
If the price of common stock falls, the value of a convertible preferred stock will also tend to fall. Select one: True False
True
Some preferred stocks are not perpetual and must be retired at some specified time period. Select one: True False
True
The value of a convertible bond as a debt instrument sets a floor (i.e., minimum price) on the bond. Select one: True False
True
When a convertible bond is called, the bondholder must convert the bond or lose the appreciation achieved by the stock. Select one: True False
True
