7. Briefly explain the differences between preferred and common stock. If you ar

Question

7. Briefly explain the differences between preferred and common stock. If you are the investor which one will you prefer and why?

8. What are the different kinds of risk in finance.

9. You currently have AED90,000 and plans to purchase a 6-year certificate of deposit (CD). How much will you have when the CD matures if it pays 7% interest, compounded annually?

10. Norwegian Adventures offers a 7% coupon bond with annual payments. The yield to maturity is 8% and the maturity date is 7 years from today. What is the market price of this bond if the face value is $1,000?

11. A 10-year government bond with a face value of $ 1,000 pays a coupon of 8% annually. The compounded interest rate is 9%.

a) Calculate the present value of the bond.

b) Generate a table showing how the bond’s present value changes for annually compounded interest rates between 1% and 15%.

c) What can you deduce about the relationship between the bond price and the yield to maturity (YTM)?

12.

a). State whether True or false? Explain The value of share equals the discounted stream of future earnings per share.

b). Consider the following two stocks:

a. Stock A is expected to provide a dividend of $10 a share forever.

b. Stock B is expected to pay a dividend of $5 next year. Thereafter, dividend growth is expected to be 4% a year forever. If the market capitalization rate for each stock is 10%, which stock is the most valuable? What if the capitalization rate is7%?

Explanation / Answer

7) The preferred stock has some qualities of a common stock and some of a bond. It pays dividend like common stock and traded in the stock exchange .The difference is that preferred stocks pay an agreed-upon dividend at regular intervals unlike common stocks may pay dividends depending on profitability of the company .The preferred shareholders don't have any voting rights like common shareholders have. The preferred stocks can recall before maturity by paying the issue price but common stocks can be repurchased at ongoing market price.
I prefer preferred stocks when I need a steady stream of income and it depends upon the market if interest rates are low preferred stock dividends pay a higher income stream than bonds.

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.