Stocks Intermediate: Introduction to Convertibility

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1.
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.
2.
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.
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.
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.
A convertible security is often in the form of _______.
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Preferred stock or corporate bonds. Convertibles are often preferred stocks or bonds that can be exchanged for the companys common stock.