Preferred Stock in Corporate Finance
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Questions and Answers

Which statement best describes the position of preferred stock in a company's capital structure?

  • Preferred stock has no specific ranking in the capital structure and is treated the same as ordinary shares.
  • Preferred stock ranks behind both ordinary shares and debt holders in the event of liquidation.
  • Preferred stock ranks ahead of ordinary shares but after debt holders in the event of liquidation. (correct)
  • Preferred stock ranks ahead of both ordinary shares and debt holders in the event of liquidation.

    • What is the primary distinguishing feature of preferred stock compared to ordinary shares?

  • Preferred stock carries a fixed dividend that must be paid before ordinary shareholders receive anything. (correct)
  • Preferred stockholders have a higher claim on the company's assets than ordinary shareholders.
  • Preferred stock can be easily converted to ordinary shares at any time.
  • Preferred stockholders have voting rights, while ordinary shareholders do not.

    • Which of the following statements about preferred stock is true?

  • Preferred stock is technically an equity investment but has investment characteristics more like corporate bonds. (correct)
  • Preferred stock is considered part of the equity asset class.
  • Preferred stock is a type of debt instrument issued by companies.
  • Preferred stock is a hybrid security that combines characteristics of both debt and equity instruments.

    • If a company is liquidated, which group would receive any residual value after preferred stockholders and debt holders have been paid?

    <p>The ordinary shareholders</p> Signup and view all the answers

    Which of the following statements is NOT true about preferred stock?

    <p>Preferred stock is a type of debt instrument issued by companies.</p> Signup and view all the answers

    What was the primary driver behind the exponential growth of ETFs since their inception in the early 1990s?

    <p>The flexibility, transparency, and cost efficiency of ETFs compared to traditional mutual funds</p> Signup and view all the answers

    Which of the following best describes the evolution of ETF investment strategies over time?

    <p>ETFs have expanded to encompass a wide range of investment strategies, including passive, active, smart beta, and thematic approaches</p> Signup and view all the answers

    What is the key factor that has contributed to the significantly higher growth trajectory of ETFs compared to traditional mutual funds?

    <p>The ability of ETFs to provide diversification and liquidity for investors</p> Signup and view all the answers

    How have active ETFs impacted the overall ETF market landscape?

    <p>Active ETFs have added a dynamic layer to the ETF market, challenging the traditional perception of ETFs</p> Signup and view all the answers

    Which of the following statements is true regarding the global ETF market size and growth trends?

    <p>The global ETF market had an estimated $6.7 trillion in assets under management (AUM) as of 2022, representing a 15% CAGR since 2010</p> Signup and view all the answers

    What is the primary reason why ETFs have become the go-to choice for many investors seeking diversification and liquidity?

    <p>The flexibility and transparency of ETFs compared to traditional mutual funds</p> Signup and view all the answers

    Which of the following statements accurately describes the role of active ETFs?

    <p>Active ETFs allow portfolio managers to employ their expertise in selecting securities within the context of an ETF structure, attracting investors seeking to outperform market benchmarks or pursue specific investment goals.</p> Signup and view all the answers

    How do regulatory frameworks for ETFs differ between the United States and Europe?

    <p>In the United States, ETFs are subject to the Investment Company Act of 1940 and other securities laws, whereas in Europe, ETFs face different tax treatment compared to mutual funds, which influences their adoption and growth.</p> Signup and view all the answers

    Which of the following statements accurately describes the types of ETFs available in the market?

    <p>ETFs can be categorized into various types based on their investment strategies and focus areas, such as bond ETFs for regular income generation, stock ETFs that track individual industries or sectors, and actively managed ETFs that offer portfolio managers greater discretion in selecting securities.</p> Signup and view all the answers

    Which of the following statements accurately describes the advantages and disadvantages of ETFs?

    <p>ETFs offer lower fees, tax efficiency, and immediate dividend reinvestment as advantages, but also come with unique risks, including potential volatility in some cases and the impact of index-based investing.</p> Signup and view all the answers

    Which of the following statements accurately describes the market impact and future outlook of ETFs?

    <p>ETFs have played a crucial role in shaping the financial landscape, with their influence extending beyond their direct market impact, and some concerns surround the potential for ETFs to contribute to market instability, particularly in times of extreme volatility.</p> Signup and view all the answers

    Which of the following statements is true regarding the role of investors in the ETF market?

    <p>By understanding the nuances of ETFs and their role in the broader asset management landscape, investors can make informed decisions that align with their investment objectives and risk tolerance.</p> Signup and view all the answers

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