Deck 14: Preferred Stock

Question 1

Common features of preferred stock include​

A) variable, cumulative dividends​
B) ​variable, non‑cumulative dividends
C) ​fixed, non‑cumulative dividends
D) ​fixed, cumulative dividends

Answer 1

​fixed, cumulative dividends

Question 2

Some preferred stocks are not perpetual and must be retired at some specified time period.​

Answer 2

True

Question 3

The dividend paid by a preferred stock is usually​

A) ​tax deductible
B) ​variable
C) ​paid in stock
D) ​fixed

Answer 3

​fixed

Question 4

Preferred stock dividends are not a legal obligation of the firm.​

Question 5

One measure of the safety of a preferred stock's dividend is the ratio of dividends to earnings before interest and taxes.​

Question 6

What is the value of a preferred stock that pays an annual dividend of $3 a share and competitive yields are 5%, 10%, and 15%?​

Question 7

A firm has the following preferred stocks outstanding:
PFD A: $40 annual dividend, $1,000 par value, no maturity
PFD B: $95 annual dividend, $1,000 par value, maturity after twenty-five years
If comparable yields are 9 percent, what should be the price of each preferred stock?

Question 8

Common features of preferred stock include​

A) ​fixed, cumulative dividends
B) ​variable, cumulative dividends
C) ​fixed, non‑cumulative dividends
D) ​variable, non‑cumulative dividends

Question 9

If a firm misses a payment for a non-cumulative preferred stock, the dividend never has to be paid.​

Question 10

If interest rates increase,​

A) ​the prices of bonds and preferred stock increase
B) ​the price of bonds increases but the price of preferred stock decreases
C) ​the prices of bonds and preferred stock decline
D) the price of bonds decreases but the price of preferred stock increases

Question 11

​Preferred stock and bonds are similar because

A) ​they both have voting power
B) interest and dividend payments are legal obligations
C) ​neither interest nor dividends are tax deductible
D) ​both are a source of financial leverage

Question 12

One measure of the safety of a preferred stock's dividend is the earnings-per-preferred share.​

Question 13

Arrearage means that a cumulative preferred stock's dividend is not being paid.​

Question 14

Preferred stock dividends are usually fixed.​

Question 15

Preferred stock dividends are paid after interest but before dividends to common stock.

Question 16

Preferred stock dividends are not a tax deductible expense for the firm.​

Question 17

​Which of the following is not equity?

A) ​paid‑in capital
B) ​retained earnings
C) ​preferred stock
D) ​debentures