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Chapter 20:   Long-Term Debt, Preferred Stock, and Common Stock

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1. An indenture is an unsecured bond.

2. A sinking fund is a poorly performing mutual fund whose net asset value is declining.

3. A call provision allows the purchaser of a security to demand repayment of the principal.

4. A bond callable at 105 means that a 5 percent call premium will be paid on the face value if the bond is ever called.

5. Dual-class common stock can enable company founders or management to have voting control of the corporation.

6. From an investor's standpoint, a debenture issued by the Acme Aglet Company will appear "riskier" than a share of preferred stock issued by the Acme Aglet Company.

7. If you were a common shareholder with minority interests, you would prefer a majority-rule rather than a cumulative voting system.

8. Most preferred stocks have a noncumulative feature.

9. The book value and the market value of common stock are usually the same.

10. The participating feature allows preferred shareholders to share in increasing dividends with the common shareholders.

11. Preferred stockholders have a prior claim on the assets of the firm as compared to the claims of the lenders.

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