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

question 25

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 issue 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:

Primary Drives

Basic, innate motivations that are necessary for survival, such as hunger, thirst, and avoidance of pain.

Homeostasis

The process by which living organisms regulate their internal environment to maintain a stable, constant condition in response to external changes.

Internal Environment

refers to the conditions, processes, and elements within an organization that influence its activities and choices.

Hierarchy of Motives

A structure that ranks human needs and motivations in order of importance, from basic physiological needs to self-actualization.