1.4 Preferred Stock

Question 1

Which kinds of preferred stock are most likely to pay higher dividends?

Answer 1

Participating preferred stock

&

Callable preferred stock

Question 2

Annual per- share dividend is calculated by?

Answer 2

Par value x Dividend rate

Then

X by number of shares

Question 3

Preferred stock acts more like a ___________ security

Answer 3

Debt

Question 4

Preferred stock is less or more risky than common stock??

Answer 4

Less

Question 5

Market price fluctuates with issuers profits and losses

Common or preferred?

Answer 5

Common

Question 6

More risky, but more growth potential

Common or preferred?

Answer 6

Common

Question 7

Voting rights equal one per share

Common or preferred?

Answer 7

Common

Question 8

May receive a share in companies profits in the form of dividends

Common or preferred?

Answer 8

Common

Question 9

Dividends may or may not be paid regularly

Common or preferred?

Answer 9

Common

Question 10

Participates in the companies growth through appreciation in the stock price

Common or preferred?

Answer 10

Common

Question 11

Priority during liquidation, WHICH stock holders are last in line

common or preferred?

Answer 11

Common

Question 12

Market price fluctuates with interest rates and issuers credit worthiness

Common or preferred?

Answer 12

Preferred

Question 13

Less risky but less growth potential

Common or preferred?

Answer 13

Preferred

Question 14

Voting rights equal none

Common or preferred?

Answer 14

Preferred

Question 15

When dividends are paid they are paid as a fixed percentage of par

Common or preferred?

Answer 15

Preferred

Question 16

Junior to bondholders and other creditors, priority liquidation has these holders above which holders

Common or preferred ?

Common or preferred ?

Answer 16

Preferred

Common

Question 17

Which stock, common or preferred, have a face value/par value?

Answer 17

Preferred

Usually 100 for the test

Question 18

Par value represents the the?

Answer 18

Money that they preferred shareholder can claim if the company goes bankrupt

Question 19

What are the four types of preferred stock?

Answer 19

Callable

Convertible

Cumulative

& Participating

Question 20

What is callable preferred stock?

Answer 20

Callable preferred stock gives the issuing company the right to call its shares after some set date and at a set price

Question 21

When would an issuer call callable preferred stock?

Answer 21

If interest rates dropped in the issuer can issue new preferred stock at a lower rate

Question 22

Callable preferred stock tends to pay ____________ dividends than non-callable preferred stock

Answer 22

Higher

This is because the issuer is compensating for the fact that the stock may be called

Question 23

What is convertible preferred stock?

Answer 23

Stock that offers shareholders the chance to participate in the growth of a company.

It offers investors the right to convert their preferred shares to common stock at a set conversion ratio

Question 24

Is convertible preferred stock usually lower or higher on the dividend?

Answer 24

Lower

Because of the option to convert

Question 25

Conversion ratio=

Answer 25

Face Value / conversion price

Question 26

Parity price =

Answer 26

Current market price x conversion ratio

Question 27

What is cumulative preferred stock?

Answer 27

Stock that allows dividends to accumulate when a dividend payment Is not made to a stockholder

Question 28

Non-cumulative preferred stock does not?

Answer 28

Accrue unpaid dividends

Question 29

Non-cumulative preferred stock pays typically higher or lower dividends than cumulative preferred stock?

Answer 29

Higher

Question 30

What is participating preferred stock?

Answer 30

Stock that allows investors to receive extra dividends when the company exceeds some predetermined financial goal/goals

Question 31

Protective provisions permit?

Answer 31

Preferred shareholders to veto certain actions by the company

They are designed to protect preferred stockholders from the dilution of their investment

Question 32

Preferred stock rises or falls when interest rates go up?

Answer 32

Falls

Question 33

Preferred stock rises or falls when interest rates go down?

Answer 33

Rises

Question 34

Do individual Investors have to pay taxes on dividends received?

Answer 34

Yes

Question 35

What rate do individual investors pay taxes on dividends received?

Answer 35

The qualified dividends rate

The same as long-term capital gains rate

Question 36

Dividends or text as?

Answer 36

Ordinary income when individuals have not owned the stock beyond a given holding period.