04%20stocks%20test%20bank%20problems%20solutions

04%20stocks%20test%20bank%20problems%20solutions - FNAN 301...

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Unformatted text preview: FNAN 301 Solutions to test bank problems – stocks Some answers may be slightly different than provided solutions due to rounding 1. Driver Corporation has issued bonds, common stock, and preferred stock. Rank the following in terms of their priority on Driver’s cash flows from highest to lowest: bondholders, common shareholders, and preferred shareholders. Bondholders have the highest priority on Driver’s cash flows Preferred shareholders have the next highest priority on Driver’s cash flows Common shareholders have the lowest priority on Driver’s cash flows 1 FNAN 301 Solutions to test bank problems – stocks 2. Rogers Corporation has issued bonds, common stock, and preferred stock. a. Which of the three securities is most likely to be the most risky? b. Which of the three securities is most likely to be the least risky? c. Which of the three securities is most likely to be neither the most nor the least risky? a. Rogers common stock is most likely to be the most risky b. Rogers bonds are most likely to be the least risky c. Rogers preferred stock is most likely to be neither the most nor the least risky, as a firm’s preferred stock is likely to be riskier than its bonds, but safer than its common stock 2 FNAN 301 Solutions to test bank problems – stocks 3. Van London Corporation has issued bonds, common stock, and preferred stock. Which group, bondholders, common shareholders, or preferred shareholders, is most likely to have the most control over the management of the corporation? Answer: common shareholders Common stockholders run the company, albeit primarily indirectly through the Board of Directors that they elect. Bondholders and preferred shareholders have limited influence over how a company is run. 3 FNAN 301 Solutions to test bank problems – stocks 4. Which one of the assertions is true? Assume running a company can be done directly or indirectly. A. Common shareholders, preferred shareholders, and bondholders are the primary groups of investors that run a company B. Common shareholders and preferred shareholders are the primary groups of investors that run a company C. Common shareholders and bondholders are the primary groups of investors that run a company D. Preferred shareholders and bondholders are the primary groups of investors that run a company E. Common shareholders make up the primary group of investors that runs a company F. Preferred shareholders make up the primary group of investors that runs a company G. Bondholders make up the primary group of investors that runs a company H. Neither common shareholders, preferred shareholders, nor bondholders is the primary group of investors that run a company Answer: E. Common shareholders make up the primary group of investors that runs a company Common stockholders run the company. This is typically done indirectly. Bondholders and preferred shareholders have little influence on how a company is run....
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This note was uploaded on 02/03/2011 for the course FINANCE 301 taught by Professor Murray during the Spring '09 term at George Mason.

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04%20stocks%20test%20bank%20problems%20solutions - FNAN 301...

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