Issuing Convertible Bonds or Bonds with Warrants Is Useful for a Company

question 40

Multiple Choice

Issuing convertible bonds or bonds with warrants is useful for a company of unknown risk because

• A)the effects of risk are opposite on the two value components and tend to cancel each other out.
• B)if the firm is high risk, the option premium will be higher while the straight bond value is fixed.
• C)only risky companies issued these instruments.
• D)the equity value is dependent on current risks only, not the future risk at conversion.

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Definitions:

Depth Cue

Are visual or auditory indications that provide information on the relative distance of objects from an observer, aiding in perception of depth.

Interposition

A visual signal that an object is closer than the ones behind it because it obstructs their view.

Half-Moon Contours

Shapes or outlines that resemble the crescent form of the moon at either its first or last quarter phase.

Brighter Colors

Refers to colors with a higher luminance or intensity, often perceived as more vivid or more reflective of light.