To think critically about: Key differences between common stock, preferred stock , and corporate bonds Introduction: Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

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Answer 1

Question

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

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Answer 2

Question

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

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Answer 3

Question

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

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Answer 4

Question

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

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Answer 5

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

Answer 6

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

Answer 7

Chapter 2, Problem 1PS

Summary Introduction

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Answer 8

Expert Solution & Answer

Explanation of Solution

Common Stock − It is the stock which has voting privileges/rights associated with it. Holders of common stock are owners of the company as ownership is divided in proportion to the common stock held by them. Holders of common stock are usually termed as shareholders of the company. Being owners, they have the right to vote at the time of decision making and at annual general meeting of the company. Dividend amount varies depending upon the profits of the company. If a company has no profit or decides not to pay profit in any year, than in that case no dividend is distributed to the shareholders and no accumulation of dividend occur.

Preferred Stock - It is a share similar to an equity share with the feature that it gets priority at the time of dividend payment i.e. the dividend is paid first to preferred shareholder as compared to ordinary shareholder. Thus, it is debt in nature. Dividend is paid at a fixed rate to the holders of preferred stock. The dividend amount gets accumulated in case a company decides not to distribute dividend in any particular year. Thus, the dividend gets accumulated and paid subsequently in the future year.

Corporate Bond - It is a financial instrument which is used to raise money from the debt market i.e. it is like a loan against the security. Interest is paid by the company to the holders at a fixed rate which can be quarterly/semi-annually/annually. There is no option available with the company to avoid payment of interest or to defer it to future years in case of bondholders.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Conclusion

Thus, all the three type of securities have different characteristics although all are used for financing purpose by the company.

Answer 12

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To think critically about: Key differences between common stock, preferred stock , and corporate bonds Introduction: Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Videos

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Explanation of Solution

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Chapter 2 Solutions

To think critically about: Key differences between common stock, preferred stock , and corporate bonds Introduction: Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Videos

To think critically about: Key differences between common stock, preferred stock, and corporate bonds Introduction: Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.

Explanation of Solution

Want to see more full solutions like this?

Chapter 2 Solutions

To think critically about:

Key differences between common stock, preferred stock, and corporate bonds

Introduction:

Securities: There are various modes to raise capital by a firm. Some of the modes are by the issue of common stock, bonds, debentures, preferred stock, etc.