1. How are warrants used by corporations?
A. To decrease the volatility of their common stock
B. To allow for insurance of debt at rates lower than would otherwise be required
C. To decrease the dilution of earnings per share
D. More than one of the above
2. Which of the following statements about convertible securities is true?
A. They provide a guaranteed income stream, minimum value, and conversion
B. The conversion premium is influenced by the volatility of the underlying common stock, term to maturity, and dividend payment relative to interest rate
C. They are potentially dilutive to earnings and must be taken into consideration in the calculation of both primary and fully diluted earnings per share
D. All of the above are true
3. A firm has warrants outstanding for investors to purchase 50,000 shares at $25 per share. The current stock price is $40. The firm has l million shares outstanding and earnings per share of $1.50. What are earnings per share when all these warrants are exercised?
A. $1.43
B. $1.47
C. $1.45
D. None of the above
4.All of the following are characteristics of LEAPS, except:
A. Leaps have up to two years of expiration
B. Leaps have generally been limited to "blue chip" stocks such as Coca-Cola, Dow Chemical, General Electric, IBM, and others
C. Leaps have the same characteristics as the short-term options, in general
D. Leaps generally have lower premiums because of their length
5.If you have a put option on a stock index you hope the market will:
A. Go up
B. Go down
C. Remain unchanged
D. None of the above
6.Under what circumstances can the writer of a call option expect to profit?
A. Stock price declines
B. Stock prices remain the same
C. The increase in stock price is less than the speculative premium
D. All of the above
7.Options may have advantages over futures for some investors because
A. Options have a lower margin requirement
B. Options provide more efficient hedging
C. Some investors are prohibited by law from participating in the futures market
D. None of the above
8.The primary use of stock index futures by the portfolio manager is
A. To offset the loss on the portfolio in a declining market
B. To profit from major market movements
C. To increase the profit potential on the portfolio
D. All of the above
9.From the corporate financial officer's viewpoint, which of the following is not an advantage of issuing convertible debentures?
A. The market value of the firm's common stock may rise dramatically
B. Interest rates are generally lower than on straight debt instruments
C. Conversion may enhance the firm's stock price
D. None of the above are advantages
10.The settle price is the same as the
A. Opening price
B. Closing price
C. Intraday high price
D. None of the above