Question

In case of Chapter 7 bankruptcy, in which order do investors get paid? a. Unsecured creditors, secured creditors, preferred stockholders, common b. Secured creditors, unsecured creditors, preferred stockholders, common c. Preferred stockholders, common stockholders, unsecured creditors, secured d. Preferred stockholders, common stockholders, secured creditors, unsecured stockholders. stockholders. creditors. creditors. Which of the following statements is CORRECT? a. A non-dividend paying stock will decline in price over time. P. A non-constant growth stock whose growth rate decreases will decline in price over time. A constant growth stock whose growth rate is negative will increase in price over time. A constant growth stock whose growth rate is negative will remain at the same price over time. A constant growth stock whose growth rate is negative will decline in price over time.

Answer 1

1) answer- (b)

In case of bankcruptcy,

Secured creditors are paid first, because their credit is secured. Then comes unsecured creditors as though their credit is unsecured, they are outsiders. From what is left over, preference stock holders are paid and from the Final left over capital common stockholders are paid off.

2) answer- e) A constant growth stock whose growth rate is negative will decline in price over time.

When the growth rate is negative for a stock, its earning potential and thus its potential to expand and progress goes on decreasing which pulls down its price over time.