Stocks Intermediate: Introduction to Convertibility

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1.
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.
2.
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.
3.
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.
4.
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.
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.