Finance quiz CH 7

Which of the following is a difference between common stock and bonds?

Bondholders have a senior claim on assets and income relative to stockholders.

Which of the following is typically a feature of common stock?

Common stocks may or may not pay dividends.

A(n) ___ is hired by a firm to find prospective buyers for its new stock or bond issue

Investment Banker

The following is true of preferred stock

Preferred stock with a conversion feature allows holders to change each share into a stated number of shares of common stock.

________ are financial instruments that allow stockholders to purchase additional shares at a price below the market price, in direct proportion to their number of owned shares.

Rights offering

ADR

Securities balanced by American depository shares that permit US investors to hold shares of non-US companies and trade them in the US market

The following is true of efficiency market hypothesis

Since stocks are fully and fairly priced, it follows that investors should not waste their time trying to find and capitalize on miss-priced [under or over valued] securities.

The following typically applies to common stock but not preferred stock.....

Voting Rights

According to the efficient market hypothesis, prices of actively traded stocks ________.

do not differ from their true values in an efficient market

A(n)________ is hired by a firm to find prospective buyers for its new stock or bond issue.

investment banker

The following is true of common stock

it does not mature so repayment is not required

Dividends in arrears that must be paid to the preferred stockholders before payment of dividends to common stockholders are ________.

cumulative

ADRs are ________.

securities, backed by American depositary shares (ADSs), that permit U.S. investors to hold shares of non-U.S. companies and trade them in U.S. markets

____ is a guide to affirm value if it is assumed that investors value the earnings of a given firm in the same way they do the average firm in the same industry

the P/E multiple

From a corporations point of view, a disadvantage of issuing preferred stock is

the dividends are not tax-deductble

A proxy statement is a statement transferring ________.

the votes of a stockholder to another party

A proxy statement gives shareholders the right ________.

to give up their vote to another party

A group formed by an investment banker to share the financial risk associated with underwriting new securities is called a(n) ________.

underwriting syndicate