From an investor's perspective, a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds. However, from a corporate issuer's standpoint, these risk relationships are reversed: Bonds are the most risky for the firm, preferred is next, and common is least risky. Is the above statement True or

From an investor's perspective, a firm's preferred stock is generally considered to be less risky than its common stock but more risky than its bonds. However, from a corporate issuer's standpoint, these risk relationships are reversed: Bonds are the most risky for the firm, preferred is next, and common is least risky. Is the above statement True or

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter12: The Cost Of Capital

Section: Chapter Questions

Problem 4QTD

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Indicate whether the following statements are (True) or (False) and correct the false statements: Primary and secondary markets are markets for short-term and long-term securities, respectively. Public offering is the sale of a new security issue, typically bonds or preferred stock, directly to an investor or group of investors. When considering each financial decision alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase the firm's profitability.
Which of the following is a difference between stocks and bonds? Select one: a. cash flows to bondholders are not known and not promised, cash flows to stockholders are known and promised b. companies issue stocks to grow the company and issue debt to pay bills c. required returns on debt are typically lower than required returns on equity d. dividends are legal obligations of the firm; coupons are not. Clear my choice
Which of the following statements is TRUE regarding Stocks? O A. Stocks typically have very predictable future cash flows where bonds do not. O B. You should sell stocks if you expect a bull market in stocks. Oc. Claims of lenders come before those of common stockholders. O D. The limited liability feature of corporate stocks increases the risk for shareholders.
Which is correct about financial securities?a. Financial securities guarantees return to investors.b. Financial securities eliminate risk that most financial managers are facing.c. Diversification spreads risk and improves expected total return.d. Financial securities protect investors against risk shocks brought by social, economic, and politicalevents.e. All of the abovef. None of the above
Explain whether the following statements are true or false. Justify your answer and solve both the parts of this question. a) The income from bond is more uncertain compared to the income from shares b) Managers want to maximize the intrisic value of the stock not the market price of the stock.
If securities markets are rational and efficient in that they fully and correctly include all available information into a company’s stock price, the resulting price will reflect investors’ unbiased expectations about the company’s future earnings and cash flows. True or False
Financial risk refers to the: Multiple Choice possibility that interest rates will increase. risk of owning equity securities. the risk that the share price may not reflect all known information general business risk of the firm. risk faced by equity holders of firms with debt.
Which of the following statements is false? Group of answer choices Stocks are long-term securities issued by corporations. Common stock is the residual interest in the firm and gives the owner dividend rights, voting rights, liquidation rights, and preemptive rights. Common stock promises a dividend payment but usually does not give voting rights. Bonds are less risky than stocks.
Which of the following statements is CORRECT? a. Convertible bonds generally have lower coupon rates than non-convertible bonds of similar default risk because they offer the possibility of capital gains. b. A debenture is a secured bond that is backed by some or all of the firm's fixed assets. c. Junk bonds typically provide a lower yield to maturity than investment-grade bonds. d. A company's subordinated debt has less default risk than its senior debt. e. Senior debt is debt that has been more recently issued, and in bankruptcy it is paid off after junior debt because the junior debt was issued first.
If a firm increases its financial risk by selling a large bond issue that increases its financial lewverage explain this assumption?Also what is the relationshipbetween risk and return. Explain with examples bold examples.
1) You want to invest your money in the safest way possible (i.e., your only objective is minimizing the likelihood of losses). Which instrument of the ones listed below should you choose for your investment? (Choose just one.) a) AAA-rated corporate bond b) BBB-rated corporate bond c) Treasury bill d) Convertible bond e) Broad-based market index f) Stock in a low-volatility firm g) Well-diversified portfolio consisting of stocks, bonds, and real estate h) Cook county bond Focus MacBook Pro
Which of the following statements is incorrect? Group of answer choices Unsystematic risk can be eliminated by holding a diversified portfolio. Income taxes have the effect of increasing the cost of debt for a firm. All the answers are correct except one. Accounting balance sheets reflect book values. The current cost of debt for a publicly traded bond is derived from its yield to maturity calculation.