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FINA 3315 CH. 9 & 10 2026
ACTUAL QUESTIONS WITH
VERIFIED ANSWERS.
Asset-backed securities (A B S) - correct answer-§securities
backed by pools of auto loans, credit card bills, home equity
lines of credit, as well as computer leases, hospital receivables,
small business loans, truck rentals, even royalty fees.
§Issued by corporations
§Offer relatively high yields
§Short maturities, typically less than 5 years
§Interest and principal payments are monthly
High credit quality
P I K bond - correct answer-§an unusual type of junk bond
-P I K stands for "payment in kind"
-Rather than paying the bond's coupon in cash, the issuer can
make annual interest payments in the form of additional debt,
usually for five or six years, before making interest payments in
real money.
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Yankee bonds - correct answer--issued by foreign governments
or corporations or by supernational agencies, like the World
Bank and the InterAmerican Bank.
•Issued and traded in the U.S.
•Registered with SEC
•All transactions are in U.S. dollars
•No currency risk
Eurodollar bonds - correct answer--issued and traded outside
of the U.S. and are not registered with the SEC.
•Denominated in U.S. dollars
•Eurodollar market primarily aimed at institutional investors and
dominated by foreign-based investors.
Convertible bonds - correct answer-•securities originally issued
as bonds (or even preferred stock) by a corporation and
containing a provision that gives investors the option to convert
their bonds into shares of the issuing firm's stock.
•Convertibles are hybrid securities because they contain
attributes of both debt and equity.
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equity kicker - correct answer--the right to convert these bonds
into shares of the company's common stock.
Forced conversion - correct answer-while the bondholder has
the right to convert the bond at any time, more often than not,
the issuing firm initiates the conversion by calling the bonds.
Conversion privilege - correct answer-▪key element of a
convertible that stipulates the conversion feature's conditions.
(≠ for mutual fund context)
Conversion period - correct answer-▪the time period during
which a convertible issue can be converted.
Conversion ratio - correct answer-▪denotes the number of
common shares an investor receives by converting a bond.
Conversion price - correct answer-indicates the implicit price
per share that an investor pays by trading a bond for shares of
stock.
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L Y O N (liquid yield option note) - correct answer-▪zero-coupon
convertible bond that is convertible, at a fixed conversion ratio,
for the life of the issue
-i.e., a zero coupon bond with both a conversion feature and a
put option.
▪No current income, but no limit on potential capital
appreciation.
▪Put option allows security to be sold back to issuer at
prespecified prices, providing downside protection.
Conversion value - correct answer-indicates what a convertible
issue would trade for if it were priced to sell on the basis of its
stock value.
Conversion equivalent (conversion parity) - correct answer-
indicates the price at which the common stock would have to
sell in order to make the convertible security worth its present
market price.
Current Equivalent - correct answer-current market
price/conversion ratio
FINA 3315 CH. 9 & 10 2026
ACTUAL QUESTIONS WITH
VERIFIED ANSWERS.
Asset-backed securities (A B S) - correct answer-§securities
backed by pools of auto loans, credit card bills, home equity
lines of credit, as well as computer leases, hospital receivables,
small business loans, truck rentals, even royalty fees.
§Issued by corporations
§Offer relatively high yields
§Short maturities, typically less than 5 years
§Interest and principal payments are monthly
High credit quality
P I K bond - correct answer-§an unusual type of junk bond
-P I K stands for "payment in kind"
-Rather than paying the bond's coupon in cash, the issuer can
make annual interest payments in the form of additional debt,
usually for five or six years, before making interest payments in
real money.
, Page | 2
Yankee bonds - correct answer--issued by foreign governments
or corporations or by supernational agencies, like the World
Bank and the InterAmerican Bank.
•Issued and traded in the U.S.
•Registered with SEC
•All transactions are in U.S. dollars
•No currency risk
Eurodollar bonds - correct answer--issued and traded outside
of the U.S. and are not registered with the SEC.
•Denominated in U.S. dollars
•Eurodollar market primarily aimed at institutional investors and
dominated by foreign-based investors.
Convertible bonds - correct answer-•securities originally issued
as bonds (or even preferred stock) by a corporation and
containing a provision that gives investors the option to convert
their bonds into shares of the issuing firm's stock.
•Convertibles are hybrid securities because they contain
attributes of both debt and equity.
, Page | 3
equity kicker - correct answer--the right to convert these bonds
into shares of the company's common stock.
Forced conversion - correct answer-while the bondholder has
the right to convert the bond at any time, more often than not,
the issuing firm initiates the conversion by calling the bonds.
Conversion privilege - correct answer-▪key element of a
convertible that stipulates the conversion feature's conditions.
(≠ for mutual fund context)
Conversion period - correct answer-▪the time period during
which a convertible issue can be converted.
Conversion ratio - correct answer-▪denotes the number of
common shares an investor receives by converting a bond.
Conversion price - correct answer-indicates the implicit price
per share that an investor pays by trading a bond for shares of
stock.
, Page | 4
L Y O N (liquid yield option note) - correct answer-▪zero-coupon
convertible bond that is convertible, at a fixed conversion ratio,
for the life of the issue
-i.e., a zero coupon bond with both a conversion feature and a
put option.
▪No current income, but no limit on potential capital
appreciation.
▪Put option allows security to be sold back to issuer at
prespecified prices, providing downside protection.
Conversion value - correct answer-indicates what a convertible
issue would trade for if it were priced to sell on the basis of its
stock value.
Conversion equivalent (conversion parity) - correct answer-
indicates the price at which the common stock would have to
sell in order to make the convertible security worth its present
market price.
Current Equivalent - correct answer-current market
price/conversion ratio
