True or False and why? 1) An organization’s return on equity will be affected by

Question

True or False and why?

1)  An organization’s return on equity will be affected by the organization’s operating, investing, and financing activities.

2)  When converting from a bond to a stock security, the bondholder must consider not only the conversion ratio, but also the interest payments and dividend payments of the respective investments.

3) Preferred stock is considered a hybrid because the value can increase, like common stock, but it also offers interest payments, like a bond.

4) When an organization is unable to fulfill the obligations of its debt covenants under a bond indenture, the legal consequence could result in the organization’s assets being transferred to the bondholders. where the assets of the firm are transferred to the debt-holders.

Explanation / Answer

1) True, as Return on Equity is a KPI which gets impacted by the cash flow activities in long term.

2) False, The convertible bonds are issues by the companies who have high risk associated with it. The only option which the bondholder has is to consider the conversion ratio and other things like interest payments and dividend payments are not considered at the time to bond conversion.

3) True, That is correct that preferred stock has the quality of bond with a fixed payment and in the failure of which it triggers themselves into a common stock with preferrences.

4) True, in many bond identure, the agreement contains that in case of the breakage of covenants the assets shall be transferred to the bond holders.

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