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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

A bond that pays interest forever and has no maturity is a perpetual bond. In what respect is a perpetual bond similar to a no-growth common stock? Are there preferred stocks that are evaluated similarly to perpetual bonds and other preferred issues that are more like bonds with finite lives? Explain.

Summary Introduction

To identify: The characteristics of a perpetual bonds that are similar to those of preferred stock and no-growth common stock.

Introduction:

Perpetual Bond: Bond is a fixed income financial instrument for long-term financial assistance required by the companies. A category of bonds that does not have a maturity date, that is the bond without any fixed tenure is a perpetual bond.

Preferred Stock: A category of financial assistance available with the companies that demands preference over equity shares for dividends and other payments is called preferred stock. It has fixed cost and no right to vote, usually.

No-growth Common Stock: The common stock that is similar to perpetual bond except the fixed periodic payments. Unlike the perpetual bond, it changes the periodic payment but at a fixed rate.

Explanation
  • The perpetual bond has the fixed interest to be paid on fixed time intervals.
  • The preferred stock and no-growth common stock also has a predetermined periodic payments...

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