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5.) 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
10.) What is the difference between the following yields: coupon rate, current yield, yield to maturity?
4.) How does the preemptive right protect stockholders from dilution?
5.) If common stockholders are the owners of the company, why do they have the last claim on assets and a residual claim on income?
8.) Preferred stock is often referred to as a hybrid security. What is meant by this term as applied to preferred stock?
11.)A small amount of preferred stock is participating. What would your reaction be if someone said common stock is also participating?
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Solution Summary
The solution explains the priority of claims for various securities and and some aspects of common stock and preferred stock.
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5.) 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
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
10.) What is the difference between the following yields: coupon rate, current yield, yield to maturity?
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.
Current yield - The current yield is return available to the ...
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