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 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.
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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
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. ...
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