GE has the following securities outstanding: a senior bond, ajunior bond, a preferred stock, and...

GE has the following securities outstanding: a senior bond, a junior bond, a preferred stock, and a common stock. The preferred stock should carry __________ and ________ compared to the junior bond.

		higher risk, lower expected return
		lower risk, lower expected return
		higher risk, higher expected return
		lower risk, higher expected return

Solutions

Expert Solution

Lower risk, lower expected return

The term "stock" refers to ownership or equity in a firm. There are two types of equity - common stock and preferred stock. Preferred stockholders have a higher claim to dividends or asset distribution than common stockholders.1 The details of each preferred stock depend on the issue. Preferred stock has characteristics of both bonds and common stock which enhances its appeal to certain investors.

Junior debt refers to bonds or other forms of debt issued with a lower priority for repayment than other, more senior debt claims in the case of default. Because of this, junior debt tends to be riskier for investors, and thus carries higher interest rates than more senior debt from the same issuer.

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding,...

Garden Tools Inc. has bonds, preferred stock, and common stocks outstanding. The number of securities outstanding, the current market price, and the required rate of return for these securities are stated in the table below. The firm’s tax rate is 35%. Calculate the firm's WACC adjusted for taxes using the market information in the table. Round the answers to two decimal places in percentage form. (Write the percentage sign in the "units" box) The Number of Securities Outstanding Selling price The...

Spartan Co. has the following selected securities outstanding all year: Preferred stock, cumulative, 5%, $100 par,...

Spartan Co. has the following selected securities outstanding all year: Preferred stock, cumulative, 5%, $100 par, 3,000 shares Common stock, $1 par, 18,000 shares Bonds payable, $80,000 value, 7%, convertible into 2,000 shares of common stock Net income for the year is $79,200; the income tax rate is 30%. What is Spartan Co.'s diluted EPS, rounded.? Question 1 options: A. $3.49 B. Bonds are antidilutive C, $3.01 D. $3.41

GE has an outstanding bond issue that is currently selling for $110.21 to yield 6.59%. The...

GE has an outstanding bond issue that is currently selling for $110.21 to yield 6.59%. The bond pays a semi-annual coupon of 8% and will mature in 10 years. Find the convexity of this bond using the approximate convexity formula. (You may use 10 basis point change in yield to approximate the convexity).

Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding....

Pealand Company has 50,000 shares of common stock outstanding and 2,000 shares of preferred stock outstanding. The common stock is $1.00 par value. The preffered stock has a $100 par value, a 5% dividend rate, and is noncumulative. On October 31, 2015, the company declares dividends of $0.25 per share for common. Provide the journal entry for the declaration of dividends.

Preferred dividends Acura Labs Inc. has an outstanding issue of preferred stock with a par value...

Preferred dividends Acura Labs Inc. has an outstanding issue of preferred stock with a par value of $6060 and an 2020% annual dividend. a. What is the annual dollar dividend? If it is paid quarterly, how much will be paid each quarter? b. If the preferred stock is noncumulative and the board of directors has passed the preferred dividend for the last 44 quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid...

Spicer Reports Corp has 400,000 shares of common stock outstanding, 200,000 shares of preferred stock outstanding,...

Spicer Reports Corp has 400,000 shares of common stock outstanding, 200,000 shares of preferred stock outstanding, and 40,000 bonds. If the common shares are selling for $25 per share, the preferred shares are selling for $12.50 per share, and the bonds are selling for 97 percent of par, what would be the weight used for common stock equity in the computation of Spicer's WACC? A. 18.59% B. 19.49% C. 24.37% D. 62.50% E. 79.75% Comfort Chair, Inc. has a $1.5...

Preferred stock valuation TXS Manufacturing has an outstanding preferred stock issue with a par value of $63 per share.

Preferred stock valuation TXS Manufacturing has an outstanding preferred stock issue with a par value of $63 per share. The preferred shares pay dividends annually at a rate of 12%.a. What is the annual dividend on TXS preferred stock?b. If investors require a return of 6% on this stock and the next dividend is payable one year from now, what is the price of TXS preferred stock?c. Suppose that TXS has not paid dividends on its preferred shares in the...

Marie Corp. has $1,882 in debt outstanding and $2,269 in common stock (and no preferred stock)....

Marie Corp. has $1,882 in debt outstanding and $2,269 in common stock (and no preferred stock). Its marginal tax rate is 30%. Marie's bonds have a YTM of 5.6%. The current stock price (Po) is $45. Next year's dividend is expected to be $2.26, and it is expected to grow at a constant rate of 7% per year forever. The company's W.A.C.C. is ____%. Round your final answer to 2 decimal places (example: enter 12.34 for 12.34%), but do not...

Ring A. Ling, Inc., has $800,000 of 4% preferred stock and $1,200,000 of common stock outstanding,...

Ring A. Ling, Inc., has $800,000 of 4% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2016 and 2017. The board of directors desires to distribute $270,000 in dividends on December 31, 2018. Instructions Prepare a schedule to show how much will the preferred and common stockholders receive under each of the following independent assumptions: (a) The preferred is noncumulative and nonparticipating. (b) The preferred...

Acura Labs has an outstanding issue of preferred stock with a par value of $40 and...

Acura Labs has an outstanding issue of preferred stock with a par value of $40 and an 10% annual dividend. a. What is the annual dollar dividend? If it is paid quarterly, how much will be paid each quarter? b. If the preferred stock is noncumulative and the board of directors has passed the preferred dividend for the last two quarters, how much must be paid to preferred stockholders in the current quarter before dividends are paid to common stockholders....

Subjects