Business and Finance 6-12 (276) TExES #2
Convertible securities - ANS-is a security that can be converted into another security.
Convertible securities may be convertible bonds or preferred stocks that pay regular
interest and can be converted into shares of common stock.
EX: Company XYZ is engaged in the service industry and has a $1,000 par value bond
which is convertible into common stock. It has a coupon rate of 5% which is paid
annually. The bond prospectus specifies a conversion ratio of 30. How many shares will
a shareholder get if he has invested $1,000 in the company?
A: The conversion ratio is given in the problem which is 30 which means that the
investor will get 30% worth of shares in proportion of his shareholding of the bonds.
Worth of common shares that the investor will get = $1, = $ 33.34
Direct public offering (DPO) - ANS-financial tool that enables a company to sell stock
directly to investors—without using an underwriter as an intermediary. The company can
thus avoid many of the costs associated with "going public" through an initial public
offering or IPO.
Promissory notes - ANS-written promise to pay back borrowed money
Initial public offerings (IPO) - ANS-sale to the public, for the first time, of federally
registered and underwritten shares of stock in the company
Doctrine of contribution - ANS-A defendant that pays more than share has claim against
other parties for excess payment
Ex: Homeowner has two policies on house, house burns down, insurance company A
can share cost with insurance company B
Doctrine of Subrogation - ANS-Ability of one person to take place of another lawful
claim demand against 3rd party.
One example of subrogation is when an insured driver's car is totaled through the fault
of another driver. The insurance carrier reimburses the covered driver under the terms
of the policy and then pursues legal action against the driver at fault.
Convertible securities - ANS-is a security that can be converted into another security.
Convertible securities may be convertible bonds or preferred stocks that pay regular
interest and can be converted into shares of common stock.
EX: Company XYZ is engaged in the service industry and has a $1,000 par value bond
which is convertible into common stock. It has a coupon rate of 5% which is paid
annually. The bond prospectus specifies a conversion ratio of 30. How many shares will
a shareholder get if he has invested $1,000 in the company?
A: The conversion ratio is given in the problem which is 30 which means that the
investor will get 30% worth of shares in proportion of his shareholding of the bonds.
Worth of common shares that the investor will get = $1, = $ 33.34
Direct public offering (DPO) - ANS-financial tool that enables a company to sell stock
directly to investors—without using an underwriter as an intermediary. The company can
thus avoid many of the costs associated with "going public" through an initial public
offering or IPO.
Promissory notes - ANS-written promise to pay back borrowed money
Initial public offerings (IPO) - ANS-sale to the public, for the first time, of federally
registered and underwritten shares of stock in the company
Doctrine of contribution - ANS-A defendant that pays more than share has claim against
other parties for excess payment
Ex: Homeowner has two policies on house, house burns down, insurance company A
can share cost with insurance company B
Doctrine of Subrogation - ANS-Ability of one person to take place of another lawful
claim demand against 3rd party.
One example of subrogation is when an insured driver's car is totaled through the fault
of another driver. The insurance carrier reimburses the covered driver under the terms
of the policy and then pursues legal action against the driver at fault.
