IMANET Exam CMA Topic 5 Question 61 Discussion

Actual exam question for IMANET's CMA exam

Question #: 61
Topic #: 5

[All CMA Questions]

Which one of the following is a disadvantage of the use of convertible bonds as a form of financing?

ALess restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.

BConvertible bonds defer equity financing until the stock price is higher.

CConvertible bonds carry a lower interest rate at issuance than if the bond were not convertible.

DThe investor may choose motto convert the convertible bonds.

Show Suggested Answer

Suggested Answer: C

Decentralization results in greater speed in making operating decisions because they are made by lower-level managers instead of being referred to top management. The quality of operating decisions should also be enhanced, assuming proper training of managers, because those closest to the problems should be the most knowledgeable about them.

by Kirk at Nov 18, 2022, 04:00 PM

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Brent

1 months ago

The investor may choose not to convert the convertible bonds? What kind of investor would do that? That's like refusing free money.

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Minna

1 months ago

Deferring equity financing until the stock price is higher? That's genius! Why didn't I think of that? I'm going to be a millionaire!

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Sherron

5 days ago

Yes, it can definitely be a strategic advantage for companies looking to raise capital.

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Luisa

15 days ago

That's a good point! It can be a smart move to defer equity financing until the stock price is higher.

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Sharan

2 months ago

Less restrictive covenants? That's like saying 'Hey, we trust you not to run this company into the ground.' I'm not falling for that one.

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Dorothea

9 days ago

C) Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.

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Yuki

18 days ago

B) Convertible bonds defer equity financing until the stock price is higher.

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Tamie

25 days ago

A) Less restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.

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Edgar

1 months ago

C) Convertible bonds carry a lower interest rate at issuance than if the bond were not convertible.

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Cammy

1 months ago

B) Convertible bonds defer equity financing until the stock price is higher.

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Beckie

1 months ago

A) Less restrictive covenants in bond indentures would usually be more acceptable to investors in convertible bonds than to investors in nonconvertible bonds.

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Effie

2 months ago

Convertible bonds carry a lower interest rate at issuance? Sounds like a pretty sweet deal to me. Where do I sign up?

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Horace

2 months ago

Wait, the investor may choose to convert the convertible bonds? That's like saying I can choose to not use a winning lottery ticket. This question is as clear as mud.

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