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NEW QUESTION: 1
[According to the PRMIA study guide for Exam 1, Simple Exotics and Convertible Bonds have been excluded from the syllabus. You may choose to ignore this question. It appears here solely because the Handbook continues to have these chapters.] The profit potential from the conversion of convertible bonds into stock is limited by
A. conversion premium charged by the issuer
B. volatility of the stock
C. the issuer's option to call the security at short notice
D. a rise in interest rates
Answer: C
Explanation:
Explanation
The profit potential from the conversion of convertible bonds into stock is limited by the issuer's option to call the security at short notice. Generally, the convertible debt security is convertible into a certain number of shares, and the debt holder will generally not convert the security to shares unless there is a profit to be made.
The 'premium' is irrelevant, because as long as the premium exists, the debt holder has no incentive to convert, as he would be better off buying the shares in the market. It is only when share prices go beyond a level that it becomes advantageous convert the security into shares. However, the prospect of granting cheap shares to the debt holders is not too appealing to the issuer, and as soon as the share price goes beyond a point where the value of the shares exceeds the face value of the debt the issuer has an incentive to exercise its option to call the security.
Therefore the profit potential from the conversion of convertible bonds into shares is limited by the issuer's option to call the security, and Choice 'a' is the correct answer. The 'premium', or interest rates, or volatility are irrelevant.

NEW QUESTION: 2
Which of the following is the minimum number of power supplies for a Flex System (BTO)?
A. 0
B. 1
C. 2
D. 3
Answer: C

NEW QUESTION: 3
Click the Calculator icon in the upper left-hand corner.
In an EMC NetWorker environment, the customer is backing up 500 GB per day. The 500
GB is comprised of 35,000 very large files. According to EMC best practices, approximately how large will the Client File Index (CFI) be?
A. 10 MB
B. 8 MB
C. 4 MB
D. 6 MB
Answer: B

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