3.1 Common Stock

Question 1

Who equity positions in a corporation?

Answer 1

Common stockholders

Preferred stockholders

Question 2

The difference between a convertible bond and a bond with warrants is that:

Answer 2

when warrants are exercised, the issuer receives equity capital from the warrants in addition to the original debt from the bond with warrants; when convertible bonds are converted, the bond is replaced with stock.

Question 3

Warrants

Answer 3

They are issued by corporations
They are a customized way to fit the needs of the issuing corporation and owner.
They typically have a maturity date of up to five years or more

Question 4

Rights

Answer 4

Gives the shareholder a short-term opportunity to buy new shares of the new stock issue, thereby maintaining the shareholder’s respective overall percentage ownership in the corporation

Question 5

Risks inherent with equity investments

Answer 5

Interest rate risk, market risk, business risk, and financial risk are all risks that impact equity investments

Question 6

warrants

Answer 6

They allow for customization of terms among all potential investors. Warrants are essentially customized (not standardized) call options issued to meet the needs of both the issuing corporation and the investor.

Warrants are issued with other securities to make the offering more attractive.