Question

1(a). (TRUE or FALSE?) Issuers of common stock generally promise to pay a fixed dollar amount of dividends to the investor but this promise always result in bankruptcy if it is broken.

1(b). (TRUE or FALSE?) Restrictive covenants of a bond may include limits on future borrowings by the bondholders, minimum working hours that must be maintained by the bondholders, and restrictions on dividends paid to bond holders.

1(c). (TRUE or FALSE?) Common stock has an infinite maturity and higher-priority claim to assets and earnings than bondholders.

Answer 1

1(a). False

The common stock or shareholders have a right to dividend by the issuers of common stock but if a company is not able to pay dividends in certain years, it does not result in bankruptcy as it is not mandatory to pay dividends, dividends are paid if the company has sufficient earnnings.

1(b). False

Restrictive covenants of a bond are laid down for the issuers of the bonds and not the bondholders.

1(c). False

Common stock holders have the last claim to assets and earnings after bond holders and preferance shareholders are paid.