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    Stock Questions

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    Take the following list of securities and arrange them in order of their priority
    of claims:
    Preferred stock Senior debenture
    Subordinated debenture Senior secured debt
    Common stock Junior secured debt

    What is the difference between the following yields: coupon rate, current yield,
    yield to maturity?

    How does the preemptive right protect stockholders from dilution?

    If common stockholders are the owners of the company, why do they have the
    last claim on assets and a residual claim on income?

    Preferred stock is often referred to as a hybrid security. What is meant by this
    term as applied to preferred stock?

    Why is the cumulative feature of preferred stock particularly important to
    preferred stockholders?

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    Solution Preview

    Take the following list of securities and arrange them in order of their priority
    of claims:
    Preferred stock Senior debenture
    Subordinated debenture Senior secured debt
    Common stock Junior secured debt

    Answer:

    The claims usually will satrt with the secured lenders, then move to unsecured lenders and then to equity. Also senior debt has a highr preference than junior debt. The list in order of prioroty of claims would be :
    Senior Secured Debt
    Junior Secured Debt
    Senior debenture ( this is unsecured debt)
    Subordinated Debenture ( subordinated debt is lower in order than senior debt)
    Preferred Stock
    Common Stock

    What is the difference between the following yields: coupon rate, current yield,
    yield to maturity?

    Answer:

    Coupon rate - It is stated interest rate. It is sexpressed as a prcentage of the par value of the bond. If a bond is issued with a stated interest rate of 4%, then this is called the coupon rate. ...

    Solution Summary

    The solution explains the priority of various claimholders in the event of liquidiation, difference between current yied and YTM of a bond, premptive rights and the cumulative feature of preferred stock.

    $2.19

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