QUESTION 1

Which of the following statements is true of convertible bonds?

	1.	The most significant disadvantage to a corporation of issuing convertible bonds is that they increase the cash that the firm must use to make interest payments.
	2.	The typical conversion ratio is set so that the firms stock price must appreciate 5% or less before it is profitable for the holder to convert the bond to stock.
	3.	Firms that issue convertible bonds can do so at a lower interest rate.
	4.	The typical issue of convertible bonds allows the holder of the bond to convert it to preferred stock.

QUESTION 3

The yield to maturity of a bond is the discount rate that makes the present value of the coupon and principal payments:

	a.	exceed the price of the bond.
	b.	equal to zero.
	c.	equal to the price of the bond.
	d.	less than the price of the bond.