Read the following MCQs and give answers:

1. A bond with a coupon rate of 6.5% (assume it is paid once annually), maturing in 10 years at a value of $1,000 and a current market price of $695, will have a current yield of

11.3%.

10.2%.

9.4%.

8.5%.

2. Preferred stock is often sold by companies?

a. wanting to balance their capital structures.

b. that have a large amount of debt relative to equity.

c. looking for the taxable advantages of preferred dividends over common stock dividends.

d. that have a large amount of debt relative to equity and that want to balance their capital structures.

3. Buggy Whip Manufacturing Company is issuing preferred stock yielding 19%. Selten Corporation is considering buying the stock. Buggy's tax rate is 0% due to continuing heavy tax losses, and Selten's tax rate is 44%. What is the after-tax preferred yield for Selten? (Round your answer to 2 decimal places.)

18.59

16.49

17.64

14.99

4. An individual investing in preferred stock receiving a before-tax preferred yield of 6.75% and having a tax rate of 25% would receive an after-tax preferred yield of _____. Assume the tax rate on dividends is 15%.

6.75%

5.1%

5.7%

6.1%

Answer rating: 100% (QA)

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