2 a. Preferred stock is similar to a bond in the following way: preferred stock

Question

2

a.

Preferred stock is similar to a bond in the following way:

preferred stock always contains a maturity date
       
              

both investments provide a fixed income

both contain a growth factor similar to common stock

both of them are creditorship securities

V. None of the options specified here

   b.

Cumulative preferred stock:

requires dividends in arrears to be carried over into the next period
      
      
      

has a right to vote cumulatively

has a claim to dividends after common stock

generally has the right to vote

V. None of the options specified here   

c.

Common stockholders have priority over both the preferred stockholders and bond owners in the case of a firm's bankruptcy.

True

False

d.

Which of the following is true about a preferred stock?

a. nNon payment of dividend does not bring bankruptcy

b. Pays a fixed rate of dividend each year c. Dividends can be deducted from firm's income for tax purposes

a and b only

a and c only

b and c only

a, b, and c only

V. None of the options specified here

e.

Which of the following is true about common stockholders?

I. Common stockholders have a limited liability

II. Common stockholders are residual owners of the company

III. Common Stocks holders are entitled to dividend whenever the firm makes a profit

I and III only

II and III only

I and II only

I, II, and III only

None of the options specified here.

I.

preferred stock always contains a maturity date
       
              

II.

both investments provide a fixed income

III.

both contain a growth factor similar to common stock

IV.

both of them are creditorship securities

V. None of the options specified here

   b.

Cumulative preferred stock:

I.

requires dividends in arrears to be carried over into the next period
      
      
      

II.

has a right to vote cumulatively

III.

has a claim to dividends after common stock

IV.

generally has the right to vote

V. None of the options specified here   

c.

Common stockholders have priority over both the preferred stockholders and bond owners in the case of a firm's bankruptcy.

True

False

d.

Which of the following is true about a preferred stock?

a. nNon payment of dividend does not bring bankruptcy

b. Pays a fixed rate of dividend each year c. Dividends can be deducted from firm's income for tax purposes

I.

a and b only

II.

a and c only

III.

b and c only

IV.

a, b, and c only

V. None of the options specified here

e.

Which of the following is true about common stockholders?

I. Common stockholders have a limited liability

II. Common stockholders are residual owners of the company

III. Common Stocks holders are entitled to dividend whenever the firm makes a profit

I.

I and III only

II.

II and III only

III.

I and II only

IV.

I, II, and III only

V.

None of the options specified here.

Explanation / Answer

2 a ii

similarities between bonds and preferred stocks is that they both receive regular payments from the company. With bonds, you will receive interest payments on the debt that is owed by the company. With preferred stock, you will receive regular dividend payments from the company.

B i

Cumulative preferred stock is a type of preferred stock with a provision that stipulates that if any dividend payments have been missed in the past, the dividends owed must be paid out to cumulative preferred stock holders first. This is before other classes of preferred stock shareholders and common stock holder can receive dividend payments.

C false

D iv

E iv

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

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