Chapter 14, Problem 1PS

Terminology* Fill in the blanks, using the following terms: floating rate, common stock, convertible, subordinated, preferred stock, senior, warrant.

1. a. If a lender ranks behind the firm’s general creditors in the event of default, his or her loan is said to be _____.
2. b. Interest on many bank loans is based on a ____ of interest.
3. c. A(n) _____ bond can be exchanged for shares of the issuing corporation.
4. d. A(n) _____ gives its owner the right to buy shares in the issuing company at a predetermined price.
5. e. Dividends on _____ cannot be paid unless the firm has also paid any dividends on its _____.

Summary Introduction

To fill in: The appropriate terminology.

Explanation of Solution

a.

In a case if the ranking of the lender is behind the general creditors in an default event then his or her loan is termed as subordinated.

b.

The bank loan interest is mainly based on the floating rate of interest.

c.

The bonds that can be exchanged for shares that are issued by a corporation is known as convertible bonds.

d.

A warrant provide their owner their rights to purchase the shares from the company that issues at a price that is predetermined.

e.

The common stock dividends cannot be paid unless the firm makes payment on the dividends of preferred stocks.