1. Which of the following statements is CORRECT?
a. A warrant is basically a long-term option that enables the holder to sell common stock back to the firm at an agreed upon price, at a specified time in the future.
b. Generally, warrants are distributed along with preferred stock in order to make the preferred stock less risky.
c. If a company issuing coupon-paying debt wanted to reduce the cash outflows associated with the coupon payments, it could issue warrants with the debt to accomplish this.
d. One of the disadvantages of warrants to the issuing firm is that they are detachable and can be traded separately from the debt with which they are issued.
2. Which of the following statements is CORRECT?
a. Both warrants and convertibles are types of option securities.
b. Convertibles bring in additional funds when converted, while warrants do not.
c. Return on Assets will rise after a Convertible Bond is exchanged for equity.
d. Off balance sheet financing may make a company appear less risky than it actually is because its stated debt ratio will appear lower.