Multiple choice

1. A company will issue 20- year bonds with annual interest payments. Each bond will include 30 warrants that give the holder to purchase one share of stock per warrant. Each warrant is expected to have a value of $5.75. A similar straight-debt issue would require an 8% coupon. What coupon rate should be set on the bonds with warrants so that the package will sell for $1,000?

5.76%

6.83%

7.94%

6.98%

none of the above

2. A firm's common stock currently sells for $17.50. Its 10% convertible bonds (issued at par $1000) now sell for $900 and the conversion price is $20. What is the conversion ratio?

87.5

17.5

50

45

none of the above

3. KORO Corporation's common stock currently sells for $27.50. Its 8% convertible bonds (issued at par $1000) now sell for $950. The bonds can be converted into 40 shares of common stock. What is the conversion price?

25

40

23.5

38

none of the above

4. KORO Corporation's common stock currently for $27.50. Its 8% convertible bonds (issued at par $1000) now sell for $950. The bonds can be converted into 40 shares of common stock. What is the conversion value of the bond?

688

593.75

950

1100

none of the above