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Chapter 22:   Convertibles, Exchangeable, and Warrants

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1. To "force" conversion, companies issuing convertible securities must usually raise the dividend on their common stock.

2. The theoretical value of a warrant may be said to be its floor value.

3. As the conversion value increases, the company will increase the annual dollar interest paid on the convertible security.

4. Convertible securities are often an indirect way of raising equity capital.

5. A warrant is a relatively long-term option to purchase common stock, while a right is a relatively short-term option to do the same thing.

6. As the warrant approaches its maturity period, the difference between its market value and its theoretical value increases.

7. Diluted earnings per share are earnings available to common shareholders divided by the actual number of shares of common stock outstanding.

8. The conversion value establishes a floor for the price of a convertible bond.

9. The value of a convertible is twofold -- its value as a bond or preferred stock, and its potential value as a common stock.

10. The greater the growth potential of the company's common stock, the higher the premium over conversion value the company can demand at the time of issuing a convertible security.

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