The yield to maturity on a bond
A) is fixed in the indenture.
B) is lower for higher risk bonds.
C) is generally below the coupon interest rate.
D) is the required rate of return on the bond.
Question 2
TellTrue Corporation has preferred stock which paid an annual dividend in 2009 of 5 per share.
TellTrue also has common stock which paid a dividend in 2009 of 5. Which of the following
statements is MOST correct concerning TellTrue stock?
A) If the required return on the preferred stock is the same as the required return on the common
stock, then the price of preferred stock should equal the price of the common stock if markets
are efficient.
B) The price of the preferred stock is expected to be higher than the price of the common stock
because the required return on preferred stock is higher than the required return on common
stock.
C) The price of the common stock could be higher than the price of the preferred stock if the
common stock dividends are expected to grow in the future.
D) The price of the preferred stock should equal the price of the common stock since the
dividends are the same.
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