Series 65 - Unit 2
D) TIPS
A customer asks if there are any debt instruments providing income that might at least keep pace with inflation and offer some tax advantages. What suitable recommendation could be made that would meet the customer's criteria? A) ADRs B) GNMAs C) U.S. T-bills D) TIPS
D) YTC is the same as YTM.
A customer buys a 5% bond at par. The bond is callable in 5 years at par and matures in 10 years. Which of the following statements is true? A) YTC is higher than YTM. B) Nominal yield is higher than either YTM or YTC. C) YTC is lower than YTM. D) YTC is the same as YTM.
A) they are secured obligations of the issuing bank.
All of the following are true of negotiable, jumbo certificates of deposit except A) they are secured obligations of the issuing bank. B) they are readily marketable. C) they usually have maturities of one year or less. D) they are usually issued in denominations of $100,000 to $1 million or more.
D) selling at discount
An agent is discussing a specific bond that would be a good addition to the client's portfolio. The client comments that the nominal yield is lower than its current yield. The agent would explain that the bond is A) selling at a premium B) a high-yield bond C) issued by an unseasoned company, and the market hasn't yet realized how well secured the debt is D) selling at discount
C) The yield to maturity (YTM) is less than both the current yield and the coupon rate.
An investor purchased a 20-year bond with a duration of 11 years for $1,323.18. Which of these statements is correct? A) The coupon rate is lower than the YTM, and the current yield should be higher than the coupon rate. B) The current yield is higher than both the coupon rate and the YTM. C) The yield to maturity (YTM) is less than both the current yield and the coupon rate. D) The coupon rate is higher than the YTM, and the YTM is higher than the current yield.
A) $10,225.00.
An investor purchasing 10 corporate bonds at a price of 102¼ each will pay A) $10,225.00. B) $1,022.50. C) $10,202.50. D) $1,020.25.
A) debentures.
Corporate long-term debt securities that are issued on the general credit of the issuer and are not otherwise secured are called A) debentures. B) general obligation bonds. C) prior lien bonds. D) preferred stock.
A) 6.7%
GHI common stock has a $10 par value and is selling in the market for $60 per share. If the current quarterly dividend is $1, the current yield is A) 6.7%. B) 1%. C) 1.7%. D) 10%.
A) BB
High-yield bonds are frequently called junk bonds. Which of the following expresses the highest rating that would apply to a junk bond? A) BB B) BBB C) CCC D) CC
A) short-term borrowing rates.
If a group of money managers was having a discussion and the term SOFR was mentioned, the topic would most likely be A) short-term borrowing rates. B) current economic conditions in Liberia. C) long-term borrowing rates. D) contract negotiations with the employee's union.
B) Aa-rated corporate debenture
Many fixed-income investors are looking to avoid loss of principal. Which of the following would likely have the lowest degree of exposure to credit risk? A) Baa-rated municipal revenue bond B) Aa-rated corporate debenture C) Ba-rated corporate mortgage bond D) A-rated general obligation municipal bond
A) preferred stockholders.
One of the advantages of owning a corporation's debentures is that you have prior claim over A) preferred stockholders. B) secured creditors. C) employees. D) general creditors.
A) potentially higher yields.
One of the benefits of adding foreign debt securities to an investor's portfolio is A) potentially higher yields. B) potentially higher risk. C) receiving income in foreign currency. D) reduced taxation.
C) a reduction in the market price of the bond
One of the likely consequences of a rating downgrade on a bond is A) the call feature will be employed. B) the current yield will be reduced. C) a reduction in the market price of the bond. D) an increase to the coupon by the issuer.
D) Government National Mortgage Association (Ginnie Mae)
Securities issued by which of the following issuers have the direct backing of the U.S Treasury? A) Federal Home Loan Mortgage Corporation (Freddie Mac) B) Federal National Mortgage Association (Fannie Mae) C) Federal Agricultural Mortgage Corporation (Farmer Mac) D) Government National Mortgage Association (Ginnie Mae)
A) $100 per share.
The DERP Corporation has an outstanding convertible bond issue that is convertible into eight shares of stock. If the current market price of the bond is 80, the parity price of the stock is A) $100 per share. B) $80 per share. C) $125 per share. D) $64 per share.
D) as a percentage of its market value
The current yield of a callable bond selling at a premium is calculated A) as a percentage of its call price. B) as a percentage of its par value. C) to its maturity date. D) as a percentage of its market value.
D) II and IV
The net asset value of an international bond fund can be expected to increase if which of these occur? Interest rates rise abroad. Interest rates fall abroad. The U.S. dollar strengthens. The U.S. dollar weakens. A) I and IV B) I and III C) II and III D) II and IV
D) Long-term bonds
The price of which of the following will fluctuate most with a change in interest rates? A) Money market instruments B) Short-term bonds C) Common stock D) Long-term bonds
A) the SOFR.
A European corporation seeking a short-term loan would probably be most concerned about an increase to A) the SOFR. B) the Fed funds rate. C) the U.S. Treasury bill rate. D) the eurobond rate.
A) multiply 0.08 by 0.72.
A client in the 28% marginal federal income tax bracket invests in a corporate bond with an 8% coupon. To calculate the client's after-tax rate of return, A) multiply 0.08 by 0.72. B) divide 0.08 by 0.28. C) divide 0.08 by 0.72. D) multiply 0.08 by 0.28.
D) I and IV
A customer purchased a 5% U.S. government bond yielding 6%. A year before the bond matures, new U.S. government bonds are being issued at 4%, and the customer sells the 5% bond. The customer probably did which of the following? Bought it at a discount Bought it at a premium Sold it at a discount Sold it at a premium A) II and III B) II and IV C) I and III D) I and IV
B) Newly issued Treasury notes
Which of the following is not a money market instrument? A) Banker's acceptances B) Newly issued Treasury notes C) Treasury bills D) Commercial paper
A) Backed by the full faith and credit of the U.S. government
Which of the following is true of Ginnie Maes but not of other agency mortgage-backed securities? A) Backed by the full faith and credit of the U.S. government B) Collateralized by mortgages C) Yield more than T-bonds D) Are pass-through securities
A) A higher rating
Which of the following would be most likely to increase a bond's liquidity? A) A higher rating B) A longer maturity C) A lower rating D) No call protection
A) an Illinois Tool Company debt issue backed by its full faith and credit.
As defined in the Securities Exchange Act of 1934, the term municipal security would include all of the following except A) an Illinois Tool Company debt issue backed by its full faith and credit. B) a New Jersey Turnpike revenue bond. C) a City of Atlanta, GA, public library bond. D) a State of Texas general obligation bond.
B) higher than the nominal yield.
For a bond selling at a discount, the yield to maturity will be A) higher than the yield to call. B) higher than the nominal yield. C) equal to the nominal yield. D) lower than the nominal yield.
C) 102
MNO is planning to raise capital through an offering of 30-year bonds. Which call price would be most beneficial to MNO? A) 106 B) 104 C) 102 D) 110
D) 5.24%.
One year ago, ABC Widgets, Inc., funded an expansion to its manufacturing facilities by issuing a 20-year first mortgage bond. The bond is secured by the new building and land. The bond was issued with a 5.5% coupon and is currently rated Aa. The current market price of the bond is 105, resulting in a current yield of approximately A) 5.50%. B) 4.99%. C) 5.61%. D) 5.24%.
A) SOFR
What rate of interest would a bank in England charge another British bank for a short-term loan? A) SOFR B) Prime rate C) Discount rate D) Fed funds rate
A) T-bills
Which of the following debt instruments does not make periodic interest payments? A) T-bills B) T-notes C) TIPS D) T-bonds
C) DEF High-Yield Bond Fund
A client has indicated that his primary objective is maximizing current income regardless of the risk. Which of the following mutual funds would probably be most suitable for achieving that goal? A) ABC Growth and Income Fund B) GHI Index Fund C) DEF High-Yield Bond Fund D) JKL Municipal Bond Fund
B) 5%.
A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is A) 2%. B) 5%. C) not determinable from the information given. D) 10%.
A) the yield to maturity is higher than the yield to call.
ABC Corporation's 5% mortgage bond is currently trading at a premium. The bond is callable at par in 10 years and matures in 15 years. When comparing the returns available to an investor, it would be accurate to state A) the yield to maturity is higher than the yield to call. B) the yield to maturity is higher than the current yield. C) the yield to call is higher than the current yield. D) the current yield is higher than the nominal yield.
D) Ginnie Mae pass-through certificates.
All of the following debt instruments pay interest semiannually except A) industrial development bonds. B) municipal general obligation bonds. C) municipal revenue bonds. D) Ginnie Mae pass-through certificates.
C) Currency risk
Although there are a number of risks to owning a debt security that are common to all investors, which specific risk is avoided when a U.S. resident purchases a Eurodollar bond? A) Default risk B) Interest rate risk C) Currency risk D) Inflation risk
D) I and II
An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA rated corporate bonds scheduled to mature in 20 years. Which of these are among the risks that this investor will be assuming? Default risk Interest rate risk Prepayment risk Reinvestment risk A) I and IV B) III and IV C) II and III D) I and II
C) I and II
An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA rated corporate bonds scheduled to mature in 20 years. Which of these are among the risks that this investor will be assuming? Default risk Interest rate risk Prepayment risk Reinvestment risk A) III and IV B) II and III C) I and II D) I and IV
D) debentures.
Corporate long-term debt securities that are issued on the general credit of the issuer and are not otherwise secured are called A) preferred stock. B) prior lien bonds. C) general obligation bonds. D) debentures.
C) higher than the nominal yield.
For a bond selling at a discount, the yield to maturity will be A) higher than the yield to call. B) lower than the nominal yield. C) higher than the nominal yield. D) equal to the nominal yield.
A) a stated maturity date.
Regardless of the nature of the issuer, one thing an investor in debt securities can expect is A) a stated maturity date. B) an interest rate that varies with changes to market interest rates. C) physical coupons that are clipped every six months for interest payments. D) priority in payout second only to stock with a prior lien.
B) U.S. Treasury zero-coupon bonds with a maturity corresponding to the maturity of the individual Brady bond.
The most common collateral securing a Brady bond is A) an asset, or group of assets, pledged by the borrowing entity. B) U.S. Treasury zero-coupon bonds with a maturity corresponding to the maturity of the individual Brady bond. C) the credit standing of the banking institution acquiring the Brady bond. D) the credit standing of the sovereign nation issuing the Brady bond.
C) collateral trust certificates.
To secure the debt that a subsidiary is offering, a railroad holding company transfers to a trustee the common stock of another subsidiary. The offering is one of A) secured income notes. B) equipment trust certificates. C) collateral trust certificates. D) guarantee trust bonds.
C) $1,267
A TIPS bond is issued in the principal amount of $1,000, paying 3.5%. Over the security's 5-year term, the annual inflation rate is 6%. What is the principal value of the bond at the end of 4 years? A) $1,300 B) $1,344 C) $1,267 D) $1,240
C) an investment-grade corporate bond.
A bond issued by the GEMCO Corporation has been rated BBB by a major bond-rating organization. This bond would be considered A) callable. B) a high-yield corporate bond. C) an investment-grade corporate bond. D) secured.
B) II and III
An 8% corporate bond is offered on an 8.25 basis. Which of the following statements are true? Nominal yield is higher than YTM. Current yield is higher than nominal yield. Nominal yield is lower than YTM. Current yield is lower than nominal yield. A) I and IV B) II and III C) II and IV D) I and III
C) reinvestment risk.
An investor purchases a 30-year zero-coupon corporate bond. The bond was issued by a Fortune 500 company. Her investment is subject to all of the following risks except A) default risk. B) purchasing power risk. C) reinvestment risk. D) interest rate risk.
A) a debenture.
An unsecured long-term debt security issued by a corporation is known as A) a debenture. B) a collateral trust bond. C) a mortgage bond. D) an equipment trust certificate.
B) 5.00%.
If GHI currently has earnings of $3.00 and pays an annual dividend of $1.75 and GHI's market price is $35, the current yield is A) 1.75% B) 5.00%. C) 8.60%. D) 3.00%.
B) 7.11%.
The current yield on a bond with a coupon rate of 7.5% currently selling at 105½ is approximately A) 7.50%. B) 7.11%. C) 6.50%. D) 8.00%.
A) tax-equivalent yield.
When referring to municipal bonds, the formula of (1 − tax bracket) is found in the computation of A) tax-equivalent yield. B) current yield. C) yield to maturity. D) return on investment.
A) Treasury STRIPS/zero-coupon bonds
Which of the following investments gives the investor the least exposure to reinvestment risk? A) Treasury STRIPS/zero-coupon bonds B) Treasury notes C) Common stock in an electric utility D) Preferred stock in a growth company
D) Bank jumbo CD
Which of the following would you not expect to see issued at a discount? A) Commercial paper B) Treasury bill C) Zero-coupon bond D) Bank jumbo CD
B) I and IV
Which two of the following investments would offer your clients the best chance of minimizing inflation risk? Common stock Callable preferred stock Money market mutual funds TIPS A) II and III B) I and IV C) I and II D) III and IV
B) Interest payments of $30
A bond with a par value of $1,000 and a coupon rate of 6% paid semiannually is currently selling for $1,200. The bond is callable in 15 years at 105. In the computation of the bond's yield to call, which of these would be a factor? A) Future value of $1,200 B) Interest payments of $30 C) 15 payment periods D) Present value of $1,050
A) 3.5%
A client in the 30% tax bracket owns a 5% XYZ, Inc., debenture due to mature shortly. What yield in a municipal bond will result in the same after-tax return that now exists has with the debenture? A) 3.5% B) 5.3% C) 1.5% D) 2.0%
B) The municipal bond because its equivalent taxable yield is 6.60%
A client is trying to decide between a par value corporate bond carrying a coupon rate of 6.25% per year and a par value municipal bond that pays an annual coupon rate of 4.75%. Assuming all other factors are equal and your client is in a 28% marginal income tax bracket, which bond do you tell the client to purchase and why? A) The corporate bond because the after-tax yield is 6.25% B) The municipal bond because its equivalent taxable yield is 6.60% C) The corporate bond because the after-tax yield is 4.50% D) The municipal bond because its equivalent taxable yield is 6.30%
C) the current dividend yield has increased.
A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter but the dividend has remained the same, it may be concluded that A) the current dividend yield has decreased. B) the current dividend yield has remained the same. C) the current dividend yield has increased. D) the dividend yield to maturity has decreased.
A) above $22.00 per share.
A corporation has issued a 4% $60 par convertible stock with a conversion price of $20. With the preferred stock selling at $66 per share, an investor holding 100 shares of this stock will benefit by converting if the price of the common stock is A) above $22.00 per share. B) below $22.00 per share. C) above $18.20 per share. D) above $20.00 per share.
A) the bond is selling at a discount.
A corporation issued a bond with a coupon of 6%, callable at 103. The bond matures in 2059. Current interest rates are 8%. It is most likely that A) the bond is selling at a discount. B) the coupon will be increased. C) the bond will be called. D) the bond will go into default.
D) the bond is selling at a discount.
A corporation issued a bond with a coupon of 6%, callable at 103. The bond matures in 2059. Current interest rates are 8%. It is most likely that A) the coupon will be increased. B) the bond will be called. C) the bond will go into default. D) the bond is selling at a discount.
C) partly taxed as ordinary income and partly a tax-free return of principal.
A mortgage-backed security (MBS), such as a Ginnie Mae, makes a combination principal and interest payment to an investor. This payment will be A) tax free. B) taxed as ordinary income. C) partly taxed as ordinary income and partly a tax-free return of principal. D) taxed as a capital gain if underlying mortgage is prepaid. Explanation
A) unethically because the agent failed to disclose that the customer retains interest rate risk.
A risk-averse investor, who had only invested funds in bank certificates of deposits, was informed by his investment adviser representative that higher returns with safety could be achieved by investing in U.S. Treasury notes with a 10-year maturity. The adviser representative assured the client that investment in federal government-backed securities is riskless. In this situation, the representative acted A) unethically because the agent failed to disclose that the customer retains interest rate risk. B) properly because Treasury notes carry no risk of principal default. C) unethically because Treasury notes are unsuitable for a risk-averse customer. D) properly because Treasury notes are suitable for a risk-averse customer.
B) It is not subject to federal income tax.
If a resident of New York City purchases an Albany, New York, general obligation bond that yields $600 of interest during the course of the year, how is the interest taxed? A) Taxation is deferred until the bond matures. B) It is not subject to federal income tax. C) It is subject to state income tax at ordinary rates. D) It is subject to federal income tax at ordinary rates.
B) $958.75
If an investor pays 95.28 for a Treasury bond, how much did the bond cost? A) $9,528.00 B) $958.75 C) $95.28 D) $950.28
C) increased liquidity.
In general, among the advantages to investing in Brady bonds over those issued by countries classified as emerging economies is A) shorter maturities. B) higher yields. C) increased liquidity. D) greater risk.
B) replace a high, fixed-rate issue with a lower issue after the call date.
Issuing callable bonds is advantageous to the issuer because it allows the company to A) issue fixed-income securities at a yield lower than usual. B) replace a high, fixed-rate issue with a lower issue after the call date. C) call in the bonds at less than par value and capture the difference as income. D) take advantage of high interest rates.
C) 8.67%
Mitch purchased a 30-year bond for 97¾ with a stated coupon rate of 8.5%. What is the approximate yield to maturity for this investment if Mitch receives semiannual coupon payments and expects to hold the bond to maturity? A) 4.36% B) 8.50% C) 8.67% D) 5.68%
B) federal income taxes.
Municipal bonds are often called tax-exempts. This refers to the exemption of their income from A) state, federal, and inheritance taxes. B) federal income taxes. C) state income taxes. D) federal estate taxes.
A) $100,000.
One of the more popular money market instruments is the negotiable CD. To be considered a negotiable CD, a CD must have a face value of at least A) $100,000. B) $500,000. C) $1 million. D) $25,000.
A) their exemption from federal income tax.
Probably the most significant characteristic of municipal bonds for investors is A) their exemption from federal income tax. B) their exemption from registration on the state and federal level. C) that their coupon yields are higher than comparably rated corporate issues. D) their safety.
A) $100.00 per share.
The DERP Corporation has an outstanding convertible bond issue with a conversion price of $125 per share. If the current market price of the bond is 80, the parity price of the stock is A) $100.00 per share. B) $156.25 per share. C) $125.00 per share. D) $64.00 per share.
C) the current market price of the GHIJ common stock is approximately $50 per share.
The GHIJ Corporation has a 3% convertible debenture outstanding with a conversion price of $40. The bond's current market price is 126. The most probable reason for this is A) the current market price of the GHIJ common stock is approximately $35 per share. B) interest rates have risen since the debenture was issued. C) the current market price of the GHIJ common stock is approximately $50 per share. D) GHIJ's earnings have risen since the debenture was issued.
C) I and II
The interest from which of the following bonds is exempt from federal income tax? State of California bonds City of Anchorage bonds Treasury bonds GNMA bonds A) I and III B) II and IV C) I and II D) III and IV
B) I and II
The interest from which of the following bonds is exempt from federal income tax? State of California bonds City of Anchorage bonds Treasury bonds GNMA bonds A) III and IV B) I and II C) I and III D) II and IV
C) is a creditor of the issuer.
The owner of a convertible debt issue A) generally expects a higher current return than with a nonconvertible bond of the same quality and maturity. B) has the choice of receiving the bond's interest or dividends on the underlying stock, whichever is higher. C) is a creditor of the issuer. D) is generally in a senior position to other bondholders.
A) selling at a discount.
When current interest rates are at 6%, you would expect a bond with a nominal yield of 4% to be A) selling at a discount. B) selling at par. C) in danger of default. D) selling at a premium.
D) holders receive a higher interest rate.
When discussing convertible debt securities, it would be incorrect to state that A) the issuer pays a lower interest rate. B) holders have a fixed interest rate. C) holders may share in the growth of the common stock. D) holders receive a higher interest rate.
D) Issued in amounts of $100,000 to $1 million
Which of the following are general characteristics of negotiable jumbo CDs? A) Trade only in the primary market B) Typically pay interest on a monthly basis C) Always mature in one to two years with a prepayment penalty for early withdrawal D) Issued in amounts of $100,000 to $1 million
C) I and III
Which of the following are not considered money market instruments? American depositary receipts Commercial paper Corporate bonds Jumbo (negotiable) certificates of deposit A) II and IV B) III and IV C) I and III D) I and II
A) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States
Which of the following best describes a Yankee bond? A) U.S. dollar-denominated bond issued by a non-U.S. entity inside the United States B) U.S. dollar-denominated bond issued by a U.S. entity outside the United States C) U.S. dollar-denominated bond issued by a U.S. entity inside the United States D) U.S. dollar-denominated bond issued by a non-U.S. entity outside the United States
A) 6.2% municipal bond to a corporation in the 21% tax bracket
Which of the following choices offers the highest tax-equivalent yield? A) 6.2% municipal bond to a corporation in the 21% tax bracket B) 5.0% municipal bond to an individual in the 35% tax bracket C) 5.5% municipal bond to an individual in the 28% tax bracket D) 5.8% municipal bond to an individual in the 25% tax bracket
D) Municipal general obligation bonds
Which of the following debt instruments generally presents the least amount of default risk? A) Municipal revenue bonds B) Convertible senior debentures C) High-yield corporate bonds D) Municipal general obligation bonds
D) Treasury STRIPS/zero-coupon bonds
Which of the following investments gives the investor the least exposure to reinvestment risk? A) Common stock in an electric utility B) Treasury notes C) Preferred stock in a growth company D) Treasury STRIPS/zero-coupon bonds
D) 8% debenture issued by the LMN Corporation
Which of the following investments would provide the highest after-tax income to your client in the 35% federal income tax bracket? A) 7% bond issued by Canadian Province M B) 6% U.S. Treasury bond C) 5% general obligation municipal bond issued by State H D) 8% debenture issued by the LMN Corporation
D) The taxing authority of the issuing government or municipality backs the issue's repayment.
Which of the following is a characteristic of an investment-grade general obligation municipal bond? A) The bond retains a direct claim on specific property. B) The bond's periodic interest is paid to investors only when sufficient revenue is collected by the municipality. C) The bond's main source of investment risk is financial risk. D) The taxing authority of the issuing government or municipality backs the issue's repayment.
C) They eliminate reinvestment rate risk.
Which of the following is correct regarding zero-coupon bonds? A) They sell at a premium. B) They offer minimum price volatility. C) They eliminate reinvestment rate risk. D) They have low interest rate risk.
A) Public library
Which of the following projects is most likely to be financed by a general obligation rather than a revenue bond? A) Public library B) Public golf course C) Expansion of an airport D) Municipal hospital
D) They generally offer higher yields than direct U.S. obligations.
Which of the following statements regarding U.S. government agency securities is true? A) They are direct obligations of the U.S. government. B) They generally trade on the major stock exchanges. C) Interest received on agency securities is exempt from federal income tax. D) They generally offer higher yields than direct U.S. obligations.
C) Coupon rates are usually higher than nonconvertible bond rates of the same issuer.
Which of the following statements regarding convertible bonds is not true? A) If there is no advantage to converting the bonds into common stock, they would sell at a price based on their market value without the convertible feature. B) Convertible bondholders are creditors of the corporation. C) Coupon rates are usually higher than nonconvertible bond rates of the same issuer. D) The conversion rate is set at issuance and does not change.
D) II and IV
Which of the following would make a corporate bond more subject to liquidity risk? Short-term maturity Long-term maturity High credit rating Low credit rating A) I and III B) I and IV C) II and III D) II and IV
C) bonds must be surrendered at maturity or at a call while the owner of common stock can hold the investment as long as desired.
You are meeting with a relatively unsophisticated investor who doesn't understand very much about stocks and bonds. The investor asks, "Can you list the advantages of owning common stock as compared to bonds?" Among other reasons, you could reply that A) there is limited liability. B) income payments are more reliable. C) bonds must be surrendered at maturity or at a call while the owner of common stock can hold the investment as long as desired. D) bonds have priority over any equity security in the event of liquidation. Explanation
C) $35.33.
Your client is interested in investing in preferred stocks in an effort to receive dividend income. The client's target goal is a 6% current return on investment (ROI). If the RIF Series B preferred stock is paying a quarterly dividend of $0.53, your client's goal will be achieved if the RIF can be purchased at A) $8.83. B) $22.55. C) $35.33. D) $50.00.
C) Present the preferred stock for the call because the call price is $4 above the parity price.
Your customer owns 1,000 shares of the XYZ $100 par 5½% callable convertible preferred stock convertible into four shares of XYZ common stock at $25. What should she be advised to do if the board of directors were to call all the preferred at 106 when the XYZ common stock is trading at $25.50? A) Convert her preferred stock into common stock because it is selling above parity. B) Place irrevocable instructions to convert the preferred stock into common stock and sell short the common stock immediately. C) Present the preferred stock for the call because the call price is $4 above the parity price. D) Hold the preferred stock to continue the 5½% yield.
