Question

A loan has an APR of 6.5% and an EAR of 6.5%. Given this, the loan must:

have a one-year term.

have a zero percent interest rate.

charge interest monthly.

charge interest annually.

Which of the following statements is most correct?______

Common stockholders have claim priority over preferred stockholders.

A big advantage of preferred stock is that preferred stock dividends are tax deductible for the issuing corporation.

preferred stockholders have claim priority over common stockholders.

None of the above statements is correct.

Other things held constant, for a given change in the market interest rate, the _______the time to maturity of bond, the the change in the bond price.

		longer; larger.
		shorter; larger.
		longer; smaller.
		None of the answers above is correct.

Answer 1

1.

Annual Percentage rate is equal to effective annual rate. it means the interest is compounded only once a year that is annually compounding. A loan has an APR of 6.5% and an EAR of 6.5%. Given this, the loan must charge interest annually..

Option (D) is correct answer

2.

Preferred stock type of security that have characteristics of both stock and bond. the investor get regular dividend like interest on bond. inn case of liquidation preferred stockholders have claim priority over common stockholders.

Option (C) is correct answer.

3.

Other things held constant, for a given change in the market interest rate, the Longer the time to maturity of bond, the Larger the change in the bond price.

Option (A) is correct answer