Stocks Intermediate: Introduction to Convertibility

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1.
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.
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.
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.
4.
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.
5.
A forced conversion is when a company calls, or redeems, its convertible securities.
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True. This does not happen completely by surprise, however. The possibility of being called is made known when the investors buy the convertibles.