Preferred stock is similar to a bond because: it pays a fixed periodic amount it has no maturity date. it represents ownership in a firm preferred dividends do not reduce a firm’s taxes.
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- it pays a fixed periodic amount
- it has no maturity date.
- it represents ownership in a firm
- preferred dividends do not reduce a firm’s taxes.
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- Which of the following is a difference between stocks and bonds? Select one: a. cash flows to bondholders are not known and not promised, cash flows to stockholders are known and promised b. companies issue stocks to grow the company and issue debt to pay bills c. required returns on debt are typically lower than required returns on equity d. dividends are legal obligations of the firm; coupons are not. Clear my choiceis NOT a characteristic of a money market instrument. A. illiquidity B. short maturity C. low risk D. none of above Which of the following is a characteristic of preferred stock? A. Give voting rights to its owner. B. It is like annuity. C. Investors cannot force the payment of the dividend. D. Dividends are tax-deductible for the fim as opposed to interest payment. Which of the following is NOT money market security? A. Bankers acceptance B. Treasury notes C. Federal funds D. Eurodollars and Eurodollar CD's2. Which of the following is a characteristic of preferred stock?A. Give voting rights to its owner.B. It is like annuity.C. Investors cannot force the payment of the dividend.D. Dividends are tax-deductible for the firm as opposed to interest payment.
- Part A: When calculating a holding period of return, dividends are excluded. True B) False Part B: Interest expense is not tax deductible while dividends are . True B) False Part C: A bond with a rating of AA is better than a bond rated AAA. True B) False PART D: Most stock trading occurs on the secondary market. True B) FalseIt's important for investors to understand what a stock's yield is and why it matters. Define and explain what a bond yield means. Where do bond investors differ from stock investors? What do they have in mind that's different? If a common dividend is not paid, what choices do investors have? What alternatives are available to bondholders if interest payments are not made?A firm’s preferred stock often sells at yields below its bonds because:a. Preferred stock generally carries a higher agency rating.b. Owners of preferred stock have a prior claim on the firm’s earnings.c. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.d. Corporations owning stock may exclude from income taxes most of the dividend income they receive.
- The yield to maturity of a company’s bonds can be higher than its cost of preferred stock TRUE FALSEPreference shares have characteristics similar to bonds because it ______________ A. has a fixed monthly rate. B. has a fixed dividend amount. C. represents the ownership of the company. D. has no fixed dividend amount.One of the major advantages of common stock financing is: I. equity capital requires a lower rate of return than debt capital in the same firm II. no fixed dividend obligation exists III. it is relatively cheaper issuing new common stock than issuing new debt capital IV. common stocks holders receive a zero rate of return a. I only b. II only c. II and III only d. I and III only e. I, III and IV only
- Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Has a par, or face, value. Usually has no specified maturity date. Consider the case of Tamin Enterprises: Debt Equity ° At the present time, Tamin Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Tamin has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $13 per share. If the investors pay $100.15 per share for their investment, then Tamin's cost of preferred stock (rounded to four decimal places) will beWhich is not true of preference shares? * A. Payment of dividends is mandatory if cumulative. B. Preference shares are convertible to ordinary shares or bonds. C. It is similar to debt financing in terms of limited cost payment. D. Cost is higher than cost of bonds.Preferred stock is the least used of all long-term securities because A) investors can get higher returns after taxes in other investments. B) preferred dividends are considered regular (fixed) obligations but are not tax-deductible. C) flotation costs are extremely high compared to bonds. D) all of these.