Question

1. The financial markets will pay investorts for accepting systematic risk but not for accepting unsystematic risk.True or False

2. A registered bond may also be called a coupon bond.True or False

3. Participating preferred stock provides the benefit of participating in the residual income of the issuer usually reserved for common stock investors only. True or false

Answer 1

Statement 1

The statement is TRUE.

Investors are not compensated for unsystematic risk since it can be eliminated for free by diversification.

Statement 2

The statement is FALSE.

A registered bond is a bond which has the owner’s name printed on the bond certificate. While, bearer bond contains no information on the owner. Bearer bond will make a payment and coupon payment to whoever holds the bond’s certificate.

Statement 3

The statement is TRUE.

Participating preference bonds have the right to participate in the remaining profit after payment of dividends to equity shareholders. Participating preference bondholders are entitled to receive more dividends in addition to their fixed preferred dividend if the company has surplus profits.