Question 1

The right to maintain ownership percentage is known as the

Accepted Answer

Pre-emptive right allows existing shareholders to maintain their proportionate ownership in a company by buying a proportional number of shares of any future issue of stock.

Question 2

When shareholders receive securities in a "rights offering,"which below is not an option?

Accepted Answer

In a rights offering, shareholders can sell their rights to someone else, use them to purchase additional shares, or allow them to expire. However, trading them back to the company for cash is not an option typically provided in a rights offering.

Question 3

An owner of 200 shares of PEP receives 2 cans of Pepsi, while the owner of 100 shares receives one can. This could qualify as a

Accepted Answer

This is considered a property dividend because the company is distributing physical assets (cans of Pepsi) instead of cash or additional shares of stock to its shareholders.

Question 4

When receiving a 10% stock dividend, the owner of 427 shares of stock will receive

Accepted Answer

The answer of When receiving a 10% stock dividend, the...

Question 5

A stock you own declares a dividend with a date of payment of December 20 and a date of record of November 15. To receive the dividend, I must buy the share from you on or before_____ , assuming no holidays or weekends are relevant.

Accepted Answer

To receive the dividend, you must own the stock before the ex-dividend date, which is typically one business day before the date of record. Therefore, buying the stock on or before November 12 ensures ownership by the date of record, November 15, considering the standard settlement period of T+2 (transaction date plus two business days).

Question 6

A stock you own sells for $10.00 now. After the ex-dividend date, approximately what would the stock sell for after a 10% stock dividend?

Accepted Answer

After a 10% stock dividend, the number of shares increases by 10%, but the total value of the investment remains the same, effectively reducing the price per share. The new price can be calculated as $10.00 / 1.10 = $9.09.

Question 7

A company splits its stock 3 for 2. You owned 500 shares before the split. How many do you have after the split?

Accepted Answer

In a 3 for 2 stock split, for every 2 shares you owned, you now own 3. If you owned 500 shares, you divide that by 2 to find how many times 3 shares can be allocated. 500 / 2 = 250 sets of 2 shares. 250 sets * 3 shares = 750 shares after the split.

Question 8

The ratio of dividends to stock price is called the

Accepted Answer

The dividend yield is the ratio of dividends to stock price, indicating the return on investment a stock provides from dividends alone.

Question 9

A number of 67 in the volume column of a stock listing means_____ shares traded the previous day.

Accepted Answer

A number of 67 in the volume column of a stock listing means 6,700 shares traded the previous day.

Question 10

The symbol - in the left margin of a stock listing means the stock

Accepted Answer

The symbol - in the left margin of a stock listing means the stock hit a 52-week high.

Question 11

A stock that has a dividend yield of zero normally would not be considered a _____ stock.

Accepted Answer

Blue chip stocks are typically well-established companies with a history of paying dividends, so a stock with a dividend yield of zero would not normally be considered a blue chip stock.

Question 12

Many public utilities are_____ stocks.

Accepted Answer

Public utilities are typically considered income stocks because they provide consistent dividends to investors.

Question 13

Retail food stocks are usually classified as a _____ stock.

Accepted Answer

Retail food stocks are typically classified as defensive stocks because they tend to remain stable during various economic cycles. People need to buy food regardless of the economy's state, making these stocks less sensitive to economic downturns.

Question 14

If you were interested in capital appreciation, which type of stock would you likely prefer?

Accepted Answer

Growth stocks are typically preferred by investors interested in capital appreciation because these stocks are expected to grow at an above-average rate compared to other companies. This growth can lead to significant increases in the stock's price over time.

Question 15

The proportion of net income after taxes that is paid as dividends is the firm's

Accepted Answer

The payout ratio is the proportion of net income after taxes that a firm pays out as dividends to its shareholders. It is a financial metric used to evaluate the percentage of earnings distributed in the form of dividends.

Question 16

Stock splits

Accepted Answer

Stock splits do not affect shareholder wealth directly. They increase the number of shares while proportionally decreasing the price per share, leaving the overall value of the investment unchanged.

Question 17

A stock held in a street name has a(n) _____ name on it.

Accepted Answer

When a stock is held in a "street name," it means that it is registered under the name of the brokerage firm instead of the individual investor's name. This is a common practice that allows for easier trading and management of the securities.

Question 18

A subsidiary that is divested by proportionally "giving away"the shares to parent company shareholders is known as a

Accepted Answer

A spin-off occurs when a parent company "gives away" shares of a subsidiary to its shareholders on a pro-rata basis, effectively creating a separate, independent company.

Question 19

A common definition of "penny stock"is one that sells for less than _____ per share.

Accepted Answer

Penny stocks are typically defined as stocks that trade for less than $1.00 per share.

Question 20

ABC Corp. earned $4.20/share last year and paid $1.20 in dividends on an average price of $50/share. The dividend yield on the stock was_____ and the payout ratio was_____ .

Accepted Answer

The dividend yield is calculated as the annual dividends per share divided by the price per share, so $1.20 / $50 = 0.024 or 2.4%. The payout ratio is the dividends per share divided by the earnings per share, so $1.20 / $4.20 = 0.2857 or approximately 29%.

Quiz 5: Common Stock