Question

7. Put the following in order of their claim on assets of a firm, starting with the LAST to have a claim: A. Subordinated debentures B. Debentures (unsubordinated) C. Common Stock D. Preferred stock A) C, B, A, D B) C, D, AB CB, A, C, D D) D, C, B, A E) D, C, A, B 8. Croft Inc, bonds have a par value of $1,000. The bonds have a 4% coupon rate and will mature in 10 years. Assume the bond is semi-annual a. Calculate the price if the yield to maturity on the bonds is 7, 8, and 9 percent, respectively. b. Explain the impact on price if the required rate of return decreases. c. How does the relationship between the coupon rate and the yield to maturity determine how a bond's price will compare to it par value? 9. Assume that you expect to hold a $20,000 investment for one year. It is forecasted to have a year end value of $21,000 with a 30% probability, a year end value of $24,000 with a 45% probability, and a year end value of $30,000 with a 25% probability. What is the standard deviation of the holding period return for this investment? A) 12.1% B) 14.4% C) 16.86% D) 33.5% 10. How is preferred stock similar to common stock? A) Preferred dividend payments usually have unlimited growth potential. B) Investors cannot sue a corporation for the non-payment of dividends. C) Both preferred and common stockholders have voting control of a firm D) Preferred stock dividends and common stock dividends are fixed.

Answer 1

Answer(7): Option "B" is correct. Order is C, D, A, B

Firstly payment is made to Unsubordinated debentures because they are secured then comes Subordinate debentures that are not secured then comes preferred stock that have priority in repaying capital after the debentures then at last comes Common stocks. Common shareholders are the owners of the company, they get the leftover.

But as the last one should be put at first so the above order is correct.

Answer(10): Option "B" is correct.

Investors cannot sue a corporation for non payment of dividends.

Preferred shareholders get fixed percentage of dividend but do not have voting rights while common shareholders have growth in their dividend and have voting rights too but any of the shareholder cannot sue the company for nonpayment of dividend at any point of time.