Question 1

The dividend yield tells investors how much in the way of a return they would receive if the stock price and the dividend level remain constant.

Accepted Answer

This statement is true. The dividend yield is calculated by dividing the annual dividend amount by the current stock price. It represents the percentage of return an investor would receive from dividends alone if the stock price and dividend level remain the same.

Question 2

The dividend yield is calculated by dividing the earnings per share by the market price of the stock.

Accepted Answer

The dividend yield is calculated by dividing the annual dividends per share by the market price of the stock. The earnings per share are not a factor in the calculation of the dividend yield.

Question 3

A company's dividend distribution can be in the form of cash or additional stock.

Accepted Answer

A company can distribute dividends in the form of cash, also known as regular dividends, or in the form of additional stock, also known as stock dividends.

Question 4

When a corporation repurchases its own stock,it does so in the secondary markets.

Accepted Answer

A corporation repurchasing its own stock does so in the secondary markets, which includes stock exchanges like the New York Stock Exchange (NYSE) or Nasdaq. The repurchased stock may then be retired or held as treasury stock.

Question 5

A stock split is a tactic by a corporation to manipulate the market price of its stock.

Accepted Answer

The answer of A stock split is a tactic by...

Question 6

Every company must pay dividends as a portion of the company's profits to its stockholders.

Accepted Answer

While many companies choose to pay dividends to their stockholders, they are not required to do so. The decision to pay dividends is up to the discretion of the company's board of directors.

Question 7

Common stockholders not only have the right to elect the board but also must approve day-to-day decisions of the chief executive officer.

Accepted Answer

Common stockholders do not have the right to approve day-to-day decisions of the CEO. They only have the right to elect the board of directors who then appoint and oversee the CEO's actions.

Question 8

A firm may decide that the price per share for its stock is getting too high for the smaller investor so the company "splits the stock."

Accepted Answer

When a company splits its stock, it increases the number of outstanding shares while reducing the price per share. This can make the stock more accessible to smaller investors.

Question 9

In the event of a corporate bankruptcy,bondholder's claims are paid before shareholders' claims are paid.

Accepted Answer

Yes, in the event of a corporate bankruptcy, bondholders have a higher priority in receiving payments compared to shareholders.

Question 10

Common stockholders have a superior claim on a company's assets over creditors and bondholders.

Accepted Answer

Common stockholders have a subordinate claim on a company's assets behind creditors and bondholders. They are only entitled to residual profits after all other obligations have been met.

Question 11

Publicly traded stocks listed on a major exchange are not very liquid investments.

Accepted Answer

Publicly traded stocks listed on a major exchange are generally considered to be very liquid investments, as they can be easily bought and sold on the open market. This is one of the advantages of investing in stocks, as it allows investors to quickly and easily convert their investment into cash if needed.

Question 12

According to your text,over time,investing in stocks generally outperforms most other investments.

Accepted Answer

The text states that "over time, investing in stocks generally outperforms most other investments."

Question 13

Holding several types of stock can greatly reduce the risk in your portfolio.

Accepted Answer

Holding several types of stock in your portfolio can help to diversify your investments and reduce the risk of significant losses if one company or sector experiences negative performance.

Question 14

Stock splits increase the number of the shares you own,but decrease the value of your total holdings with the company.

Accepted Answer

Stock splits increase the number of shares you own, but they do not decrease the value of your total holdings with the company as the value of each share decreases by the same proportion as the increase in the number of shares. Therefore, the total value of your holdings remains the same.

Question 15

Limited liability associated with stock ownership means that shareholders can only lose the amount of money they have invested in the company.

Accepted Answer

Limited liability means that shareholders are not personally responsible for the company's debts or legal obligations beyond the amount of money they have invested in the company. Therefore, they can only lose the amount of money they have invested and are not liable for any additional debt or losses incurred by the company.

Question 16

Some companies distribute earnings per share in the form of dividends and some retain these earnings for future investment in the firm.

Accepted Answer

Some companies distribute earnings per share in the form of dividends to its shareholders, while some choose to retain these earnings for future investment in the firm.

Question 17

Some firms have negative earnings per share numbers.

Accepted Answer

It is possible for a firm to have negative earnings per share if its net income is negative or if it has a large number of outstanding shares that dilute the earnings per share calculation.

Question 18

The market price of the stock is a reflection of the potential earnings per share of the firm.

Accepted Answer

The market price of a stock reflects investors' expectations of the company's future earnings potential, which in turn affects the potential earnings per share. Therefore, there is a direct relationship between market price and potential earnings per share.

Question 19

A proxy is a legal agreement a stockholder signs to allow someone else to vote for him or her at the corporation's annual meeting.

Accepted Answer

This is true. A proxy is a legal document that allows someone else to vote on behalf of a stockholder at a corporation's annual meeting. The person authorized to vote on behalf of the stockholder is called a proxy.

Question 20

When a corporation engages in a stock repurchase,each remaining shareholder owns a smaller proportion of the firm.

Accepted Answer

When a corporation engages in a stock repurchase, each remaining shareholder actually owns a larger proportion of the firm because there are fewer shares outstanding, thus increasing their relative ownership percentage.

Quiz 12: Investing in Stocks