Many Holders of Convertible Bonds Will Not Convert When the Firm's

question 58

Multiple Choice

Many holders of convertible bonds will not convert when the firm's common stock price exceeds the conversion price. To protect itself against this behavior, the firm includes a ________ on the convertible security.

• A) warrant
• B) option
• C) call feature
• D) striking price

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Definitions:

Negotiable Instrument

A document in writing that confirms the payout of a designated amount of money, whether immediately upon demand or at a specific time, with the name of the person paying listed on it.

Negotiable Instrument

A document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payer named or to the bearer.

Uniform Commercial Code

A comprehensive set of laws governing all commercial transactions in the United States, intended to standardize and simplify the law relating to business and commerce across states.

Commercial Paper

Short-term, unsecured promissory notes issued by companies to finance their operations, often with maturities of less than 270 days.