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Unformatted text preview: 24-1CHAPTER 24 Warrants and Convertibles Multiple Choice Questions: I. DEFINITIONS WARRANT b 1. A warrant gives the owner: a. the obligation to sell securities directly to the firm at a fixed price for a specified time. b. the right to purchase securities directly from the firm at a fixed price for a specified time. c. the obligation to purchase securities directly from the firm at a fixed price for a specified time. d. the right to sell securities directly to the firm at a fixed price for a specified time. e. None of the above. Difficulty level: Easy WARRANT d 2. Warrants are most often issued in combination with: a. new publicly placed common stock. b. new privately placed common stock. c. new publicly placed debt. d. new privately placed debt. e. preferred stock. Difficulty level: Easy WARRANT c 3. An &quot;equity kicker&quot; most often refers to a: a. bond with conversion privileges. b. preferred stock offering with conversion privileges. c. warrant. d. lettered common stock. e. None of the above. Difficulty level: Easy WARRANT c 4. Warrants are similar to traded options except: a. only warrants have exercise prices. b. only warrants depend on changes in the underlying stock to determine value. c. warrants affect the number of shares outstanding. d. Both A and C. e. Both A and B. Difficulty level: Medium 24-2VALUE OF WARRANTS e 5. BrightView Windows issued warrants with an exercise price of $17. BrightView's common stock currently sells for $20 per share. The warrants are: a. in the money. b. out of the money. c. valuable. d. not very valuable. e. Both A and C. Difficulty level: Medium II. CONCEPTS VALUE OF WARRANT d 6. Warrants are similar to options, in that the value of the warrant is limited by: a. expiring worthless if the stock price is below the total warrant exercise price. b. the trading capabilities of the exchange used. c. the price of the underlying stock divided by the number of warrants needed to purchase a share. d. Both A and C. e. Both B and C. Difficulty level: Medium WARRANTS AND CALL OPTIONS b 7. Which of the following would not describe the difference between warrants and call options? a. Warrants are issued by firms whereas call options are issued by individuals. b. Call options have an exercise price whereas warrants do not. c. Exercising of warrants creates dilution whereas exercising all options does not. d. When call options are exercised existing shares trade hands whereas if warrants are exercised new stock must be issued. e. None of the above. Difficulty level: Easy WARRANTS AND CALL OPTIONS e 8. Two major differences between a warrant and a call option are: a. warrants are contracts outside of the firm while options are within the firm....
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- Spring '10
- Corporate Finance