Question

All of the following are characteristics of preferred stock that make it similar to bonds except:

	a.	constant periodic payments.
	b.	ahead of common stock with respect to dividends.
	c.	no voting rights.
	d.	periodic payment is tax deductible to the paying company.
	e.	All of the above characteristics make preferred stock similar to bonds.

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The price of a stock today can be determined by:

	a.	return on stock investment.
	b.	its dividend.
	c.	kP o= D 1+(P 1-P o).
	d.	its rate of return.

The coupon rate that is shown on the face of a bond:

	a.	can be multiplied by the par value of the bond to calculate the semiannual interest payment.
	b.	should be used as the discount rate when calculating the present value of the future cash flows from the bond.
	c.	is normally close to the interest rate that a company will have to pay when the bonds are issued.
	d.	Both a. and c. are correct.
	e.	All of the above are correct.

Which of the following is generally true of IPO Pops?

	a.	Most IPO Pops don’t last and the stocks usually underperform.
	b.	A rapid drop in price of the stock occurs when trading begins.
	c.	The IPOs are overpriced and are rewarding to investors from the secondary market.
	d.	The strategy useful only to high net worth investors.

Which of the following statements is not correct?

	a.	When a bond's yield to maturity is greater than the coupon rate, the bond sells above par.
	b.	When a bond's yield to maturity equals the coupon rate, the bond sells for par.
	c.	When a bond's yield to maturity is less than the coupon rate, the bond sells above par.
	d.	Bond prices and interest rates are inversely related.

Answer 1

All of the following are characteristics of preferred stock that make it similar to bonds except:

d.

periodic payment is tax deductible to the paying company.

Interest payments on debt are tax deductible while dividend on preferred stock is not

c.

kP o= D 1+(P 1-P o).

Individual factors a,b,d cannot determine price

The coupon rate that is shown on the face of a bond:

C.

is normally close to the interest rate that a company will have to pay when the bonds are issued.

Semi annual payment is calculated by multiplying par value with coupon rate and then dividing by 2

Yield to maturity is used as discount rate

Which of the following statements is not correct?

When a bond's yield to maturity is greater than the coupon rate, the bond sells above par.

It sells at discount

All other statements are correct