12. Which one of the following statements is correct? A. Preferred stock is a fo

Question

12. Which one of the following statements is correct? A. Preferred stock is a form of corporate equity B. All classes of stock have equal voting rights per share C. Common shareholders elect the corporate directors while the preferred shareholders vote on mergers and acquisitions D. Dividends are tax-free income for individual investors E. Preemptive right does not allow stockholders to share proportionally in firms' new stock sold. 13. Samsung just paid its annual dividend of $1.45 a share. The firm recently announced that all future dividends will be increased by 2.8 percent annually. What is one share of this stock worth to you if you requ 14 percent rate of return? A. $12.56 B. S12.95 C. $13.31 D. $13.68 E. S14.07 . The capital gains yield equals which one of the following? A. Total yield B. Current discount rate C. Market rate of return D. Dividend yield E. Dividend growth rate

Explanation / Answer

12.A.Preferrd stock is a form of corporate equity:

Preferred stock along with common stock is a form of corporate equity.

All classes of stock do not have equal voting rights (so B is false).

Preferred stock holders are not allowed to vote on mergers and acquisitions (so C is false).

Qualified dividends are taxed for individual investors.

Preemptive rights allow share holders to have a proportionate share in firms new stock sold.

13.C.$13.31.

as per growth model :

price = dividend *(1+growth rate) / (required return - growth rate)

=>$1.45*(1+0.028) / (0.14-0.028)

=>$1.4906/0.112

=>$13.31.

14.E.DIvidend growth rate.

capital gains yeild usually equals dividend growth rate.

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