Which of the Following Statements Is Most CORRECT

question 21

Multiple Choice

Which of the following statements is most CORRECT?

• A) One important difference between warrants and convertibles is that convertibles bring in additional funds when they are converted, but exercising warrants does not bring in any additional funds.
• B) The coupon rate on convertible debt is normally set below the coupon rate that would be set on otherwise similar straight debt even though investing in convertibles is more risky than investing in straight debt.
• C) The value of a warrant to buy a safe, stable stock should exceed the value of a warrant to buy a risky, volatile stock, other things held constant.
• D) Warrants can sometimes be detached and traded separately from the debt with which they were issued, but this is unusual.
• E) Warrants have an option feature but convertibles do not.

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Definitions:

Federal Open Market Committee

The branch of the Federal Reserve System responsible for setting monetary policy, including influencing interest rates and controlling the money supply.

U.S. Government Securities

Financial instruments issued by the United States Department of the Treasury to finance government spending and obligations, considered low-risk investments.

Excess Reserves

The capital reserves held by a bank or financial institution in excess of what is required by regulators, central bank, or other financial authority.

Actual Reserves

The total reserves held by a bank, consisting of both required reserves and any excess reserves not needed to meet central bank requirements.