Preferred Stock In Discussion

Preferred Stock In Discussion1. Like common stock, ______________ stock also represents
equity. ______________ shareholders have a claim on
______________ and assets ahead of that of ______________
shareholders. If the business is liquidated and all the assets
sold and the proceeds used to pay off all the creditors, then
the ______________ shareholders get what is owed to them
before ______________ shareholders. While few corporations are actually liquidated, this ______________ claim provides ______________ shareholders with an advantage in the
reorganization of firms in distress or bankruptcy.
2. Almost all firms must pay their specified ______________
dividend. When dividends are paid, ______________ dividends must be paid ______________; what remains may be
paid as dividends to ______________ shareholders. Most
preferred share ______________ are paid in ______________,
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164 QUESTIONS AND PROBLEMS
although some are in the form of ______________ of stock.
Most ______________ dividends are paid ______________
and may be paid at either a(n) ______________ or
______________ rate per period.
3. ______________ dividends are expressed as either a(n)
______________ of the par value or a(n) ______________
dollar amount per period. For ______________ dividends,
the dividend rate on a(n) ______________ preferred stock
is typically fixed ______________ and based on the dividend ______________ spread. Most adjustable-rate preferred stock is ______________, with a(n) ______________.
From the perspective of the ______________, a collar’s
maximum ensures that the ______________ of financing
with preferred stock are ______________; from the perspective of the ______________, a collar’s minimum
ensures that the ______________ on the preferred stock
has a(n) ______________ limit.
4. The dividend rate on ______________ preferred stock is
set ______________, as with adjustable-rate preferred
stock, but it is established through an auction process.
______________ preferred stock is preferred stock where
the dividend rate is determined periodically by a remarketing ______________ who resets the dividend rate so that
any preferred stock can be ______________ at par and be
resold at the original ______________ price. Typically,
a(n) ______________ has the choice of dividend
______________ every seven days or every 49 days. Since
the mid-1980s, ______________ preferred stock and
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Preferred Stock 165
______________ preferred stock have become the dominant type of preferred stock issued.
5. With ______________ preferred stock, any ______________
not paid in one period must be paid the next period
______________ any other dividend for that class of preferred stock is paid and before any ______________ stock
dividend is paid. With ______________ preferred stock,
any dividend not paid in a period is ______________ paid
in any other period—it is simply ______________ and does
not affect the dividend in any ______________ period. If a
preferred stock dividend is ______________, any dividend
passed over in one period is carried over year to year. The
passed over dividend is referred to as the ______________ and
the preferred stock dividend is said to be in ______________.
Most preferred stock issued in the United States is
______________ preferred stock.
6. The market ______________ price or ______________
value is the market value of the ______________ stock the
investor would have if the ______________ stock is
exchanged with the ______________ stock. The market
conversion ______________ is the conversion
______________ multiplied by the market ______________
of a share of ______________ stock. If the market value of
the convertible ______________ stock exceeds the conversion value, we refer to this difference as the conversion
______________.
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166 QUESTIONS AND PROBLEMS
7. ______________ preferred stock gives the issuer the right
to ______________ it from the ______________ at a predetermined price. If the issuing corporation wants to buy
back the stock by using the call, they pay the specified call
______________. The call ______________ may be a(n)
______________ amount forever, or may ______________
according to a preset ______________. The call price is
generally ______________ than or equal to the ______________
or par value of the stock.
8. Because there is no legal ______________ to pay the preferred dividend and because ______________ and other
______________ take precedence if the firm is liquidated, a
corporation can provide this ______________ in the form of
a(n) ______________ fund provision. Funds are deposited
with a(n) ______________ who uses these ______________
to periodically ______________ preferred stock, buying it
from shareholders at a specified price, the ______________
fund call price. The trustee retires ______________ stock
periodically and the firm is better able to meet the
______________ payments on the remaining preferred
shares.
9. A corporation may combine any of the previously
described ______________ into its preferred stock
______________. If they hope to sell their preferred shares,
they must package them in a way that is ______________
to investors and at a reasonable ______________. Features
that give the ______________ flexibility, such as a(n)
______________ feature, and features that give the
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Preferred Stock 167
______________ something of additional value, such as
a(n) ______________ feature, must be balanced in order to
obtain an optimal cost for the package. Packaging a new
issue of preferred stock requires considering investors’ need
for greater ______________ and lower ______________
and the issuer’s need for greater ______________ and
lower ______________.