QUESTION: 21

Bubba owns a subordinated debenture in a company that is liquidating. When will he get paid?

after the company pays its outstanding bills, but before paying bank loans
after the bills are paid and the bank is paid, but before the preferred shareholders
before the holders of secured debt
after the shareholders of preferred stock

Answer(s): B

Explanation:

after the bills are paid and the bank is paid, but before the preferred shareholders. As a creditor, Bubba is paid before any of the shareholders. But his position is subordinated to other creditors, like the bank and accounts payable.

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QUESTION: 22

When a corporation dissolves, who gets paid first?

bank lenders
senior bond holders
the tax collector
the lawyer

Answer(s): C

Explanation:

the tax collector. Taxes always have preference over any other creditors.

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QUESTION: 23

Bubba wants to buy a $4 convertible preferred with that has a $50 par value and is exchangeable for common stock at $47.50. If the preferred stock is trading at 52, what does Bubba calculate as the common stock price in order to be at parity with the preferred?

47.50
52.00
a little less than 49.38
a little more than 54.50

Answer(s): C

Explanation:

a little less than 49.38. Bubba needs a calculator to divide the par value of the preferred stock by the price of the common stock. He then divides the result into the price at which the preferred stock is trading.50 divided by 47.50 = 1.05352 divided by 1.053 = 49.38.

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QUESTION: 24

Which of the following is an analyst most likely to classify as a defensive issue?

the securities of a company that airplanes to the military
a stock of a large company
the common stock of a utility company
a corporate bond

Answer(s): C

Explanation:

the common stock of a utility company. The term “defensive issue” refers to a security that is least susceptible to swings in the business cycle.

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