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QUESTION 3 Shareholders of convertible preferred stock generally have the: A. Obligation to convert their shares...

QUESTION 3

  1. Shareholders of convertible preferred stock generally have the:

A.

Obligation to convert their shares into callable shares of common stock.

B.

Right to convert their shares into shares of common stock.

C.

Right to convert their shares into bonds with an equivalent yield-to-maturity.

D.

Obligation to convert their shares into shares of common stock.

E.

Right to convert their shares into cash at par value at their discretion.

QUESTION 4

  1. Which type of bond allows the issuer to buy back the bonds before maturity?

A.

Retractable bond.

B.

Convertible bond.

C.

Zero-coupon bond.

D.

Callable bond.

E.

High yield bond.

QUESTION 5

  1. A supernormal growth stock generally:

A.

Has dividends that grow at a high rate for the life of the stock.

B.

Is valued using the preferred stock valuation technique.

C.

Is associated with a company that is experiencing rapid contraction.

D.

Has high growth dividends only for a limited number of years.

E.

Tends to increase its dividends per share by 30% or more for an extended number of years.

QUESTION 6

  1. Which one of the following will increase the present value of an annuity?

A.

Payment of annuity in the end instead of payment at the beginning.

Solutions

Expert Solution

Answer 3:- Option B: Right to convert their shares into shares of common stock.

Explanation:- Convertible preferred stock can be converted to common shares at the conversion ratio. This conversion ratio is already defined by the company before the issuance of preferred stock. Shareholders of convertible preferred stock have the right to convert not the obligation to convert their shares into shares of common stock.

Answer 4:- Option D: Callable bond

Explanation:- Callable bonds can be redeemed by the issuer prior to its maturity . It usually is done if interest rates fall, companies will buy them back to get a lower interest rate. So, this call provision allow the issuer buy back the bond before its maturity date

Answer 5:- Option D: Has high growth dividends only for a limited number of years.

Explanation:- A "supernormal growth" firm is one in which: the firm's dividends grow at a high rate for several periods, then at a lower rate afterward. During this stage, these supernormal growth stocks outperform the market. But these stocks has high growth dividends only for a limited number of years.

For Answer 6:- Though all the options not given, so it is difficult to choose an option, but then also I am listing the situations that will increase the present value of an annuity:-

  • Increase in the number of payments
  • Decrease in the interest rate or discount rate

Both of the above situations will increase the present value of annuity.

jeff jeffy answered 2 years ago
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