博迪_投资学第九版_英文答案(6)

博迪_投资学第九版_英文答案

CHAPTER 2: ASSET CLASSES AND

FINANCIAL INSTRUMENTS

PROBLEM SETS

1. Preferred stock is like long-term debt in that it typically promises a fixed

payment each year. In this way, it is a perpetuity. Preferred stock is also like

long-term debt in that it does not give the holder voting rights in the firm.

Preferred stock is like equity in that the firm is under no contractual obligation to make the preferred stock dividend payments. Failure to make payments does not set off corporate bankruptcy. With respect to the priority of claims to the assets of the firm in the event of corporate bankruptcy, preferred stock has a higher

priority than common equity but a lower priority than bonds.

2. Money market securities are called “cash equivalents” because of their great

liquidity. The prices of money market securities are very stable, and they can

be converted to cash (i.e., sold) on very short notice and with very low

transaction costs.

(a) A repurchase agreement is an agreement whereby the seller of a

security agrees to “repurchase” it from the buyer on an agreed upon date at

an agreed upon price. Repos are typically used by securities dealers as a

means for obtaining funds to purchase securities.

The spread will widen. Deterioration of the economy increases credit risk,

that is, the likelihood of default. Investors will demand a greater premium on

debt securities subject to default risk. 3. 4.

5.