CFA Practice Question
Which of the following is (are) classified as equity investment securities?
II. Redeemable preferred stock
III. Convertible bonds
I. Warrants
II. Redeemable preferred stock
III. Convertible bonds
A. I only.
B. I and II.
C. III only.
Explanation: Redeemable preferred equity are considered debt instruments since they carry a fixed coupon and the holders have a right to demand a redemption of the face value, just like a debt security. Convertible bonds are treated as debt by accounting convention, even though they could derive a significant portion of their value through the right to convert to ordinary common stock.
User Contributed Comments 1
| User | Comment |
|---|---|
| jimmy454 | a warrant is an option not an equity? it behaves like an equity for S>K but is it really classified as that? |