1. Convertible debt and straight debt issued with warrants are similar securitie

Question

1. Convertible debt and straight debt issued with warrants are similar securities, becaues both are debt securities that represent potential equity claims on the issuer's assets. In fact, convertible debt can be thought of as straight debt plus nondetachable warrants. However, several important distinctions do exist. Use the following table to indicate whether the characterstic listed refers to convertible bonds or to stock warrants:

Charactersitc Convertible Bonds Debt and Warrants When exercised, the issuing firm recieves new equity capital These securities may contain a call provision that allows the issuer to force conversion or exercise before their maturity These securitites tend to have higher flotation costs These securitites tend to be issued by larger, less risky firms

Explanation / Answer

Convertible Bonds Warrants When excersied.... Applicable for Warrant These securities may.. Applicable for Bonds These securitites tend to ... Applicable for Warrant These securitites tend to be issued by larger Applicable for Bonds

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