Question

In: Finance

Which of the following is not true about Preferred Stock? Multiple Choice It typically pays a...

Which of the following is not true about Preferred Stock?

Multiple Choice

  • It typically pays a dividend that never changes.

  • Preferred stock holders are ahead of bondholders in line to receive assets following a liquidation.

  • Any missed dividends must be paid in full before a company can make dividend payments to holders of common stock.

  • Its valuation can be determined by using the formula to value perpetuities.

  • Not every company issues preferred stock.

Which of the following is NOT true about bonds?

Multiple Choice

  • Interest payments are at least partially tax deductible to the issuing corporation.

  • Bondholders are ahead of stockholders in terms of claims on the company’s assets should the firm go into bankruptcy.

  • Bondholders have a vote in electing Directors to the Board.

  • Bondholders are entitled to receive the face (par) value of the bond if they hold it on the maturity date.

  • Owning a bond does not give the holder an ownership stake in the company.

Solutions

Expert Solution

1)

Preferred stock holders are ahead of bondholders in line to receive assets following a liquidation.

This is not true. Bondholders are given first preferance during liquidation. Preferred shareholders comes after bondholders.

2)

Bondholders have a vote in electing Directors to the Board.

Bondholders does not have any voting rights. Shareholders have voting rights.


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