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.
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.
3.
With a convertible bond, the conversion ratio defines _______.
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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.
Convertible securities are often more marketable than straight securities because investors ________.
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Are attracted to the convertibility feature. To obtain the convertibility feature, many investors are willing to pay a premium.
5.
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.