Stocks Intermediate: Introduction to Convertibility

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1.
With a convertible bond, the conversion ratio defines _______.
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The relationship between the par value of the bond and the number of shares for which it can be exchanged. Investors use the ratio to determine whether the convertible bond is a good deal for them.
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.
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.
4.
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.
5.
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.