The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

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Answer 1

Question

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

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Which of the following statements is false? The cost of debt securities is highest due to their relatively low risk The cost of common stock is highest due to its relatively high risk The cost of preferred stock falls somewhere between debt and common stock None of the above

Answer 2

Question

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

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Answer 3

Question

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

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Answer 4

Question

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

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Answer 5

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

Answer 6

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

Answer 7

Chapter 8, Problem 1RQ

Summary Introduction

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Answer 8

Expert Solution & Answer

Explanation of Solution

Numerous times preferred stock is mentioned to as a hybrid security because it has numerous features of both common stock and bonds. It has features of common stock: there is no static maturity date, the default of dividends does not force bankruptcy, and dividends are not deductible for the purpose of tax. But they are similar to bonds because the dividends are stable in amount as interest payments.

From the view point of the preferred stock shareholder, this is not the most pleasant mixture. On one hand, the dividends are inadequate as with bonds, but the security of involuntary payment by the threat of bankruptcy is not there. Therefore, from view point of the investor, the worst characteristics of common stock and bonds are joined.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

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The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

To discuss: The statement of “it often said to combine the worst features of common stock and bonds “and the reason why preferred stock referred as hybrid security.

Explanation of Solution

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