If the stock price rises substantially above the conversion price, an advantage to the corporation would be:
 A. the premium would decrease.
B. the floor price would offer the investor downside protection.
C. the bond would most likely be converted into common stock and the debt would not have to be repaid.
D. None of the above

Which of the following is TRUE about warrants?
A. As the market value of a warrant increases, so does the premium.
B. A rising stock price is usually followed by an increase in the price of the warrant.
C. Both A and B
D. None of the above

One advantage to the corporation in selling a convertible bond is:
A. the interest rate on a convertible is lower than a straight debt issue of equal risk.
B. the bond may never get converted into common stock and create dilution.
C. if interest rates fall the bond is likely to be refunded.
D. All of the above

The principal device used by the corporation to force conversion:
A. is setting the conversion price above the current market price.
B. is reducing the amount of interest payments.
C. is buying bonds back at below par value.
D. is a call provision.

When a company has a convertible bond in its capital structure:

A. it can reduce its debt-to-equity ratio by calling the bond.
B. there is no effect on the firm's primary earnings per share.
C. there is no advantage to the firm in forcing conversion of the bonds.
D. All of the above

The theoretical floor value for a convertible bond is its
A. conversion price.
B. conversion value.
C. par value.
D. pure bond value.

The floor price of a convertible bond cannot fall below:

A. the conversion ratio.

B. the conversion price.

C. the conversion premium.

D. the pure bond value.

The conversion premium is the greatest and the downside risk the smallest when:
 A. the conversion value equals the pure bond value.
B. the conversion value is greater than the pure bond value.
C. the conversion value is less than the pure bond value.
D. the stock price is expected to go up drastically.

The pure bond value of a convertible bond is found by:
 A. multiplying the price of the firm's common stock by the conversion ratio.
B. multiplying the bond's conversion premium by the price of the firm's common stock.
C. multiplying the price of the firm's common stock by the conversion ratio and adding the present value of the bond's face value.
D. finding the present value of the bond's interest payments and adding the present value of the bond's face value.

The intrinsic value of a warrant to buy 5 shares of Merton stock at $55 per share is $20. What is the current market price of Merton stock?

A. $55
B. $59
C. $60
D. None of the above