Stocks Intermediate: Introduction to Convertibility

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1.
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.
2.
A convertible security usually may be exchanged for a set number of shares of common stock at a set price.
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True. When a company issues convertibles, it sets the number and price at which the conversion can take place.
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.
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.
5.
The conversion price is usually lower than the current price of the companys common stock.
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False. The conversion price is usually higher than the current price of the companys common stock.