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True or False

1) Derivatives are used by corporations as a useful tool for managing certain aspects of a firm's risk.

2) An option derives its value from an underlying asset that is often another security.

3) A hybrid security is neither debt nor equity but instead derives its value from an underlying asset.

4) A financial lease is a cancelable contractual arrangement whereby the lessee agrees to make periodic payments to the lessor, often for five or fewer years, for an asset's services.

5) In a financial lease, the lessor must receive more than the asset's purchase price in order to earn its required return on the investment.

6) The presence of contingent securities such as warrants and stock options affects the reporting of a firm's earnings per share.

7) The conversion ratio can be obtained by dividing the par value of the convertible by the conversion price.

8) A stock purchase warrant gives the holder the right to purchase a certain number of shares of common stock at a specified price over a certain period of time.

9) Contrary to convertibles, warrants provide for the injection of additional equity capital into a firm immediately.

10) Call options are sold with the expectation that the market price of the underlying security will fall while put options are sold with the expectation that the market price of the underlying security will rise.

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