Which of the following is FALSE regarding common stockholders and preferred stockholders?

Multiple Choice

• Common stockholders bear more risk than preferred stockholders of the same corporation

• Preferred stock holders receive fixed periodic payments in the form of preferred dividends.

• Preferred stockholders have the legal right to force the firm into bankruptcy if scheduled preferred dividend payments are not made.

• Common stock holders are considered owners of the firm and vote to elect members of the board of directors.

Which of the following statements is TRUE regarding bonds?

Multiple Choice

• If the yield-to-maturity is lower than the coupon rate, the bond sells at a discount.

• If the yield-to-maturity is higher than the coupon rate, the bond sells at a discount.

• If the par value is higher than the market price, the bond sells at a premium.

• Both a and c are true.

• None of the above are true.

• Common stockholders bear more risk than debtholders of the same corporation.

Which of the following statements is TRUE regarding the valuations of preferred stock and common stock?

Multiple Choice

• Since a share of preferred stock typically has no maturity and pays a fixed periodic dividend (preferred dividend), we usually value preferred stock as a perpetuity with a fixed (zero-growth) cash flow that occurs each period.

• Common stocks are typically valued as ordinary annuities.

• From the investor's point of view, the preferred stock of a corporation is considered a more risky investment than the common stock of the same corporation.

• The dividend of a corporations preferred stock must be higher than the dividend of the same corporations common stock.

• Both a and c are correct.