From a Firm's Point-Of-View, Which of the Following Is True

question 179

Multiple Choice

From a firm's point-of-view, which of the following is true of issuance of convertible bonds?

• A) It acts as a permanent source of cheap funds.
• B) It results in a non-tax-deductible interest payments.
• C) It is an immediate sale of common stock.
• D) It decreases financial leverage upon conversion.

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Definitions:

Par Value

The nominal or face value of a bond, share of stock, or coupon as indicated on a bond or stock certificate. It is a static value determined at the time of issuance.

Face Value

The nominal value stated on a financial instrument, such as a bond or stock certificate.

Present Value

The current economic value of a future financial sum or sequence of inflows, determined by a particular rate of return.

Coupon Rate

The interest rate stated on a bond when issued, which represents the annual interest payment made to bondholders.