Erica Brown_Fin385_Week 1

Erica Brown_Fin385_Week 1 - Erica Brown Fin385 Chapter 2...

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Erica Brown Fin385 Chapter 2 Problems 3, 4, 11, 12, 13 3. Turn back to Figure 2.4 and look at the Treasury bond maturing in November 2014. a. How much would you pay to purchase one of these bonds? $1376.88 b. What is its coupon rate? 11.75% c. What is the current yield of the bond? 4.01% 4. In what ways is preferred stock like long-term debt? In what ways is it like equity? Preferred stock had features similar to both equity and debt. Like a bond, it promises to pay to its holder a fixed stream of income each year. It also resembles a bond in that it does not give the holder voting power regarding the firm’s management. Preferred stock is an equity investment. The firm retains discretion to make the dividends payments to the preferred stockholders. It has no contractual obligation to pay those dividends. Preferred dividends are usually cumulative; that is, unpaid dividends cumulate and must be paid in full before any dividends may be paid to holders of common stocks. 11. Suppose that short-term municipal bonds currently offer yields of 4%, while comparable taxable
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Erica Brown_Fin385_Week 1 - Erica Brown Fin385 Chapter 2...

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