Stocks Intermediate: Introduction to Convertibility

Test your knowledge

Choose wisely. There is only one correct answer to each question.

0%
Keep studying!
Review your answers below to learn more.
1.
A forced conversion is when a company calls, or redeems, its convertible securities.
Choose wisely. There is only one correct answer.
True. This does not happen completely by surprise, however. The possibility of being called is made known when the investors buy the convertibles.
2.
A convertible security usually may be exchanged for a set number of shares of common stock at a set price.
Choose wisely. There is only one correct answer.
True. When a company issues convertibles, it sets the number and price at which the conversion can take place.
3.
With a convertible bond, the conversion ratio defines _______.
Choose wisely. There is only one correct answer.
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.
4.
The conversion price is usually lower than the current price of the companys common stock.
Choose wisely. There is only one correct answer.
False. The conversion price is usually higher than the current price of the companys common stock.
5.
Compared to a companys common stock, its convertibles generally are less volatile.
Choose wisely. There is only one correct answer.
True. If the companys common stock price declines, the price of its convertibles usually will not fall as far.