Puckett Corp. has just issued nonconvertible preferred stock ...

[lidoalex]

Puckett Corp. has just issued nonconvertible preferred stock (cumulative) with a par value of 50 and an annual dividend rate of 7.25. The preferred stock is currently selling for 38.75 per share. What is the yield or return (r) on this preferred stock?
 
  A) 9.341
  B) 9.345
  C) 9.351
  D) 9.355

Question 2

Which of the following statements is FALSE?
 
  A) Preferred stock usually has a stated or par value but unlike bonds, this par value is not repaid at maturity because preferred stocks do not have a maturity date.
  B) The only time the par value of preferred stock would be paid to the shareholder is if the company ceases operations or retires the preferred stock.
  C) Skipped preferred dividends become a liability of the company.
  D) Preferred stock cannot be converted into common stock.

[ryrychapman11]

Answer to Question 1

Answer: D
Explanation: D) We first determine the annual dividend by multiplying the par value by the dividend rate. We have: 50  0.0725 = 3.625. Now, using the equation r = and dividing the 3.625 annual dividend by the current price of 38.75, we have: r = 0.093548, or about 9.355.

Answer to Question 2

Answer: D
Explanation: D) Preferred stock can be converted into common stock at a preset point in the future.

[lidoalex]

TY

[ryrychapman11]

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