I a share of common stock in a firm represents an

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45) (I) A share of common stock in a firm represents an ownership interest in that firm. (II) A share of preferred stock is as much like a bond as it is like common stock. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: C 46) Preferred stockholders hold a claim on assets 47) (I) Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders, but after that of bondholders. (II) Firms issue preferred stock in far greater amounts than common stock. 127 48) (I) Preferred stockholders hold a claim on assets that has priority over the claims of common stockholders. (II) Bondholders hold a claim on assets that has priority over the claims of preferred stockholders. 49) (I) Firms issue common stock in far greater amounts than preferred. (II) The total volume of stock issued is much less than the volume of bonds issued. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: C 9.2 True/False 1) The primary issuers of capital market securities are local governments and corporations. Answer: FALSE 2) Governments never issue stock because they cannot sell ownership claims. Answer: TRUE 3) Dealers “make a market” in over-the-counter stock by buying for inventory when investors want to sell and selling from inventory when investors want to buy. Answer: TRUE 4) To sell an old bond when rates have risen, the holder will have to discount the bond until the yield to the buyer is the same as the market rate. Answer: TRUE 5) Most of the time, the interest rate on Treasury notes is below that on money market securities because of their low default risk. Answer: FALSE 6) Municipal bonds that are issued to pay for essential public projects are exempt from federal taxation. Answer: TRUE 7) Most corporate bonds have a face value of $1000, are sold at a discount, and can only be redeemed at the maturity date. Answer: FALSE 128
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8) Registered bonds have now been largely replaced by bearer bonds, which do not have coupons. Answer: FALSE 9) A sinking fund is a requirement in the bond indenture that the firm pay off a portion of the bond issue each year. Answer: TRUE 10) Debentures are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.
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