1. With respect to preferred stock, if a dividend is missed and must be paid at a later date before CS dividends are paid, it is:

a. a rarely used feature

b. a fixed payment preferred stock

c. a cumulative preferred stock

d. none of the answers is correct

e. a continuous preferred stock

2. Which of the following statement is incorrect?

a. Unlike failure to make a scheduled interest or principal payment to common stockholders, failure to pay a scheduled dividend to preferred stockholders is a reason for making the company bankrupt.

b. A conversion provision gives the bondholder the option to exchange the bond for a given number of shares of stock.

c. According to Moody’s ratings, a junk bond would have a rating of Ba1 or below.

d. Common stockholders are entitled to all residual income of the firm.

e. Most of the answers are correct.