Canadian Securities Course (CSC) Practice Exam

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Practice for the Canadian Securities Course (CSC) exam with our quiz. Test your knowledge with multiple-choice questions. Be prepared for the real exam!

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What is a convertible bond?

a bond with an option allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm.
a protective provision written into the trust indenture of a company's debenture issue.
sums of money set aside out of earnings each year to provide for the repayment of all or part of a debt issue at maturity.
Government of Canada bonds that mature in 3-month, 6-month, or 12-month maturities.

The correct answer is: a bond with an option allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm.

A convertible bond is a financial instrument that combines the features of a bond and a stock option. This means that the bondholder has the option to exchange or convert the bond into a specified number of common shares in the issuing company. This option provides the potential for increased returns if the company's stock price rises. Option B is incorrect because a protective provision is a term in a bond agreement that outlines certain conditions that must be met in order to protect bondholders' interests. Option C is incorrect because this description refers to a sinking fund, which is a way for companies to set aside funds over time for repaying bond debts. Option D is incorrect because it describes a specific type of government bond issued by the Government of Canada with different maturity options, which is different from a convertible bond.