Lecture 13 Flashcards
1
Q
Why do issuers issue convertibles?
A
financing strategy
timing
lower interest cost
2
Q
Why do investors buy convertibles?
A
hybrid features
higher income than dividends on common stock
3
Q
What are the disadvantages of convertibles
A
overhanging issue
equity dilution
sell stock at a premium
4
Q
What are the factors affecting price of warrants
A
current price of underlying stock exercise price time to expiry expected volatility dividend ST risk-free interest rate
5
Q
What are the rationale for warrants
A
bonds as a sweetener
detachable
lower interest rates
6
Q
What are the advantages of trading in warrants
A
leverage opportunities
cheaper way to speculate
reduced (abs. dollar) downside risk
7
Q
What are the risks of trading in warrants
A
liquidity risk
limited life span
