You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity,while Investment DUE is an annuity due. Which of the following statements is CORRECT?Multiple ChoiceThe present value of ORD must exceed the present value of DUE, but the future value of ORD may be less than the future value of DUE.The present value of ORD exceeds the present value of DUE, and the future value of ORD also exceeds the future value of DUE.The present value of DUE exceeds the present value of ORD, while the future value of DUE is less than the future value of ORD.The present value of DUE exceeds the present value of ORD, and the future value of DUE also exceeds the future value of ORD. Which of the following statements is CORRECT?Multiple ChoicePreferred stockholders have a priority over bondholders to the income in the event of a bankruptcy, but not to the proceeds in the event ofa liquidation.The preferred stock of a given firm is generally less risky to investors than the same firm's common stock.Corporations cannot buy the preferred stocks of other corporations.Preferred dividends are not generally cumulative.

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Answered: You are considering two equally risky…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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In what way is a preferred stock usually more similar to a bond than to a common stock? O a. Preferred stockholders are more risky than common stocks O b. Preferred stockholders elect the board of directors of the organization O c. Preferred bondholders participate in the growth of the company through increases in dividends and stock prices O d. Preferred stockholders are typical entitled fixed payments O e. If the company were to go into liquidation, preferred stockholders will be entitled to payments after common stockholders are paid-off
If a preferred stock is of the cumulative type, a. dividends cannot be passed if they are earned. b. unpaid dividends of one period must be carried forward and paid in subsequent periods before anything can be paid to common stockholders. c. dividends must be paid, and if not a liability is created. d.dividends must be paid on an equal basis with common stock, so long as earnings permit.
Which of the following statements about preferred shares is inaccurate? Select one: a. Preferred shares carry credit ratings. b. In the event of liquidation of a firm’s assets, preferred shareholders are paid out before common shareholders. c. Preferred share dividends are always cumulative. d. Preferred shares are often callable and puttable. e. Preferred share dividend income from another Canadian corporation is tax-exempt.
Under the cost method, when treasury stock is purchased by the corporation, the par value and the price at which the stock was originally issued are important. True false
Managers of firms may consider a stock repurchase when they believe their stock is ____ by the market, or a offering when they believe their stock is by the market. undervalued; undervalued O overvalued; overvalued O undervalued; overvalued O overvalued; undervalued O none of the above 2255
Is preferred stock more or less risky to investors than debt? Group of answer choices More risky because companies are not required to pay preferred dividend. Less risky because companies are not required to pay preferred dividends. No answer text provided. No answer text provided.
Explain why the following statement is wrong: “The stock price is equal to the value of equity, divided by shares outstanding. Therefore, companies should avoid issuing equity because the number of shares outstanding goes up and thus the stock price would decrease."
A major difference between common and preferred stock Seleccione una: a. is that common stockholder have voting rights and preferred stockholders do not. b. is In the case of liquidation after a bankruptcy, common stockholder will be paid before preferred stockholders. c. is that preferred stockholder have voting rights and common stockholders do not. O d. is that common stock have a fixed dividend and preferred stock does not pay a dividend.
Sl acquired shares that are not part of a held for trading portfolio. The shares are listed on a public stock exchange such that fair value information is readily available. Sl management would like to report the shares at fair value on the SFP, however, management does not want holding gains and losses to result in income volatility. How should Si management classify the shares? SI reports under IFRS. Multiple Choice FVTPL FVTOCI Amortized cost Cost
Preferred stock has characteristics of both liabilities and stockholders’ equity. Convertible bonds are another example of a financing arrangement that blurs the line between liabilities and stockholders’ equity. Items like these have led some to conclude that the present distinction between liabilities and equity should be eliminated. Under this approach, liabilities and equity would be combined into one category that includes both creditor and owner claims to resources. Required: 1. Define liabilities and stockholders’ equity. 2. Provide arguments in support of maintaining the distinction between liabilities and stockholders’ equity in the balance sheet. 3. Provide arguments in support of eliminating the distinction between liabilities and stockholders’ equity in the balance sheet. 4. Which do you recommend? Why?
Which of the following statements is false? options: Outstanding shares equals issued shares minus treasury shares. Equity value equals shares outstanding times share price. Equity value equals enterprise value plus debt. Authorized shares might be interesting but not relevant in any of our calculations Enterprise value equals equity value plus debt value.

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