Question

1. Which of the following is (are) feature(s) of preferred stock?
I. It generally has a fixed dividend.
II. It generally has a dividend that increases annually.
III. It receives preference in bankruptcy over common stock.
IV. It receives preference in bankruptcy over secured bond holders.

a) II and IV only

b) I and III only

c) I only

d) II and III only

e) I and IV only

2. A System pays a constant annual dividend. Over the past year, the required return on this firm's stock decreased. Given this information, you know that over the past year:

a) the stock price had to increase.

b) the capital gains rate had to increase.

c) the stock price had to decrease.

d) the capital gains rate had to decrease.

e) the stock price decreased and the capital gains yield increased.

Answer 1

1. the following is (are) feature(s) of preferred stock:-

I. It generally has a fixed dividend.

III. It receives preference in bankruptcy over common stock.

• b) I and III only

2. Given this information, you know that over the past year:

d) the capital gains rate had to decrease.