As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock. Innovative Energy LLC is a start-up company that just raised $100,000 to conduct a third-party feasibility study on its business model. The company agreed to treat the $100,000 investment as debt at 10% interest rate; however, the investor has the right to exchange the debt for common stock during the company’s next financing round. A. Which of the following terms best describes the $100,000 investment? Warrant Convertible bond B. Consider the case of an investor, Nazim: Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when: He has reinvestment options with lower yields. He has reinvestment options with higher yields.
As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock. Innovative Energy LLC is a start-up company that just raised $100,000 to conduct a third-party feasibility study on its business model. The company agreed to treat the $100,000 investment as debt at 10% interest rate; however, the investor has the right to exchange the debt for common stock during the company’s next financing round. A. Which of the following terms best describes the $100,000 investment? Warrant Convertible bond B. Consider the case of an investor, Nazim: Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when: He has reinvestment options with lower yields. He has reinvestment options with higher yields.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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3. Convertible bonds, warrants, and other exotic bond features
As the name suggests, convertible bonds allow the owner the option to convert the bonds into a fixed number of shares of common stock.
Innovative Energy LLC is a start-up company that just raised $100,000 to conduct a third-party feasibility study on its business model. The company agreed to treat the $100,000 investment as debt at 10% interest rate; however, the investor has the right to exchange the debt for common stock during the company’s next financing round.
A. Which of the following terms best describes the $100,000 investment?
Warrant
Convertible bond
B. Consider the case of an investor, Nazim:
Nazim wants to include putable bonds in his investment portfolio. Nazim is likely to put the bonds when:
He has reinvestment options with lower yields.
He has reinvestment options with higher yields.
C. Nazim also recently bought bonds that have their interest rate tied to the consumer price index (CPI) so that he will be protected if inflation rates increase. Nazim has invested in .
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