Stocks Intermediate: Introduction to Convertibility

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1.
An owner of convertible securities usually can exchange those securities for common stock issued by another company.
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False. An owner of convertible securities can exchange them for the common stock of the same company.
2.
A company usually issues convertible bonds at a higher interest rate than that of regular bonds.
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False. The rate is usually lower. The convertibility feature is attractive enough in itself to allow the company to offer a lower rate.
3.
Unlike common stock, convertible securities generally offer a regular income.
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True. Convertibles offer regular incomeguaranteed either as dividends in the case of preferred stock or interest in the case of bonds.
4.
Compared to a companys common stock, its convertibles generally are less volatile.
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True. If the companys common stock price declines, the price of its convertibles usually will not fall as far.
5.
The conversion price is set when the company issues the convertibles.
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True. When the company issues a convertible, it sets the conversion price.