Unit 2.2

Question 1

What is preferred stock?

Answer 1

A stock that has a fixed rate of return, which is represented by its annual dividend

Question 2

What stock has a fixed rate of return represented by its annual dividend?

Answer 2

Preferred stock

Question 3

What is par value always assumed to be?

Answer 3

100$

Question 4

What are the characteristics of preferred stock in relation to shareholder rights?

Answer 4

Preferred stock shareholders have no voting rights or preemptive rights, and do not have the right to purchase shares in an amount that would keep their proportionate ownership if a corporation issues additional shares

Question 5

What stock shock shareholders have no voting rights or preemptive rights, and do not have the right to purchase shares in an amount that would keep their proportionate ownership if a corporation issues additional shares?

Answer 5

Preferred stock (shareholders)

Question 6

What are the primary benefits of owning preferred stock?

Answer 6

1.Dividend preference (owners of preferred shares must be paid before any payment to common shareholders.
2. Priority at dissolution over common stock (If a corporation goes bankrupt preferred stockholders have priority claim over common stockholders on assets remaining after creditors have been)

Question 7

Which shareholders get dividend preference?

Answer 7

Preferred stock shareholders

Question 8

Which shareholders get priority at dissolution?

Answer 8

Preferred stock shareholders

Question 9

What happens to the value of preferred stock when interest-rates rise?

Answer 9

Value declines

Question 10

What are the primary risks of owning preferred stocks?

Answer 10

Possible loss of purchasing power, interest rate risk, possible reduction or elimination of dividends

Question 11

What are the different types of preferred stock?

Answer 11

Straight/noncumulative, cumulative, callable preferred, convertible preferred, adjustable-rate preferred, participating preferred