1) Many preferred stocks have a feature that requires a firm to periodically set aside an
amount of
money for the retirement of its preferred stock. What is the name of this feature?
A) cumulative B) convertible C) callable D)
sinking fund
1)
2) Whistle Corp. has a preferred stock that pays a dividend of $2.40. If you are willing to
purchase the stock at $11, what is your required rate of return (round your answer to the
nearest
.1% and assume that there are no transaction costs)?
A) 21.8% B) 11.0% C) 20.1%
D) 9.1%
2)
3) A small biotechnology research corporation has been experiencing losses for the first
three
years of its existence, and thus has a negative balance in retained earnings. The
corporation’s
stock price, however, is $1 per share. Which of the following statements is MOST correct?
A) The required return on the stock will be small because the company has very few
assets.
B) Investors are irrational to pay $1 per share when earnings per share have been negative
for
three years.
C) The corporation’s accountants must have made a mistake because retained earnings may
not be
negative.
D) Investors believe the stock is worth $1 per share because future earnings (and cash
flows)
3)
are expected to be positive.