Preferred stock is a hybrid security, because it has some characteristics typica
ID: 2618313 • Letter: P
Question
Preferred stock is a hybrid security, because it has some characteristics typical of debt and others typical of equity. The following table lists various characteristics of preferred stock. Determine which of these characteristics is consistent with debt and which is consistent with equity. Characteristics Usually has no voting rights. Usually has no specified maturity date. Debt Equity Consider the case of Turnbull Enterprises: At the present time, Turnbull Enterprises does not have any preferred stock outstanding but is looking to include preferred stock in its capital structure in the future. Turnbull has found some institutional investors that are willing to purchase its preferred stock issue provided that it pays a perpetual dividend of $14 per share. If the investors pay $130.45 per share for their investment, then Turnbull's cost of preferred stock (rounded to four decimal places) will beExplanation / Answer
debt usually has no voting rights, but equity has voting rights.
Debt has a maturity date, but equity is usually perpertual.
2nd question:
Turnbull's cost of preferred stock
=>perpetual dividend / price of investment
=>$14 / $130.45
=>0.1073............(rounded to 4 decimals).
note: if the answer is required in percentage then it will be written as 10.7321%...(rounded to 4 decimals)
characteristics debt equity usually has no voting rights Yes - usually has no specified maturity date - yes