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

question 39

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.
• E)None of the above.

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Definitions:

Budgeted Purchases

The estimated amount of goods or materials a company plans to buy over a certain period, often part of the budgeting process.

Units Manufactured

The total number of units produced by a company in a specific period, reflecting the company's production volume.

Year

refers to a period of twelve months used for financial, business, and calendar purposes.

Ending Inventory

Ending inventory refers to the total value or quantity of unsold goods that a company holds at the end of an accounting period.