CFA Practice Question

CFA Practice Question

Which of the following is (are) classified as equity investment securities?

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?
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