Question 1

Mount Reindeer Pure Spring Water Inc. is considered a liquid company because of its generous dividend policy. Prior to the firm's ex-dividend date of May 15^th, the stock is selling for a price of $23.18 per share. If you purchase the stock prior to May 15^th, you will receive a dividend of $1.15. If you waited until May 16^th to buy the stock, and there was no other event to change the price of the stock, what would be the stock's expected price?

Accepted Answer

On and after the ex-dividend date, the stock price is expected to drop by the amount of the dividend, which in this case is $1.15. Therefore, the expected price of the stock as of May 16th would be $23.18 - $1.15 = $22.03.

Question 2

A stock dividend pays shareholders of record with additional shares of stock rather than with cash.

Accepted Answer

A stock dividend offers shareholders additional shares of stock, rather than cash payments.

Question 3

A liquidating dividend is a dividend that a company pays out routinely to shareholders, often quarterly and often the same from quarter to quarter.

Accepted Answer

A liquidating dividend is not paid out routinely, but rather is a one-time payment made when a company is going out of business or selling off assets.

Question 4

It is August 14^th and John has just purchased 100 shares of Cash Cow Inc. for $1,200 with a settlement date of August 16^th. Cash Cow recently declared a dividend of $1.00 per share payable to shareholders of record as of August 15^th. How much money did John pay for the right to the recently declared dividend?

Accepted Answer

John paid $0.00 for the dividend because he was not the shareholder of record on August 15th. Therefore, the dividend payment went to the previous owner of the stock.

Question 5

If you choose to buy shares of stock and leave the shares with your broker in street name, then the brokerage firm becomes the beneficiary owner and you become the owner of record.

Accepted Answer

When shares are held in street name, the brokerage firm is listed as the owner of record, but the actual investor (you) retains the benefits of ownership such as dividends and voting rights.

Question 6

What is a cash dividend? Define and describe the process of declaring and paying a cash dividend. In your description, define the following terms: the declaration date, the ex-dividend date, the record date, and the payment date.

Accepted Answer

The answer of What is a cash dividend? Define and...

Question 7

Define the following terms: regular cash dividend, stock dividend, special dividend, and liquidating dividend. An increase in which of these dividends appears to send the most positive signal to the market? Why?

Accepted Answer

The answer of Define the following terms: regular cash dividend,...

Question 8

The decision to pay a cash dividend is within the jurisdiction of ________.

Accepted Answer

The board of directors of the firm has the authority to make decisions regarding dividend payments, including the amount and timing of payments. The SEC regulates the disclosure and reporting of dividend information, but does not make decisions regarding dividend payments. Labor unions and shareholders may have input, but do not have the authority to make decisions regarding dividend payments.

Question 9

Firms that pay dividends typically pay ________ time(s) per year.

Accepted Answer

Firms that pay dividends typically pay four times per year, as they distribute their earnings quarterly. Thus, the best choice is C: four. The other options are not consistent with common dividend payment practices.

Question 10

After placing an order to buy or sell shares of stock through your broker, which of the following statements is true regarding the settlement date for the order?

Accepted Answer

The settlement date for stock trades is typically two business days after the trade date, known as T+2. This is the time it takes for the actual transfer of shares and money between buyer and seller to be completed.

Question 11

The record date is the date on which the board of directors announces the next quarterly cash dividend.

Accepted Answer

The record date is the date on which a shareholder must have ownership of shares in order to be eligible for a dividend. The board of directors announces the dividend on the declaration date, not the record date.

Question 12

Typically, shares of stock are stored in the vault of the brokerage firm and you, as owner, will not take physical possession. Under these circumstances the brokerage firm is the ________ and you are the ________.

Accepted Answer

The correct terms for the two parties described are the "owner of record" and the "beneficial owner." The owner of record is the brokerage firm, which holds the shares in its name on behalf of the beneficial owner, who is the actual owner of the shares. This arrangement is often referred to as "street name" or "nominee" ownership, as the shares are held in the name of the brokerage firm rather than the individual beneficial owner.

Question 13

A special dividend is associated with a period of especially poor company performance.

Accepted Answer

A special dividend is not necessarily associated with poor company performance. It can also be a way for the company to reward shareholders for exceptional performance or to distribute excess cash on hand.

Question 14

The decision to pay a cash dividend is within the jurisdiction of the shareholders.

Accepted Answer

The decision to pay a cash dividend is typically made by the company's board of directors, not the shareholders.

Question 15

Which of the following is NOT a form of corporate dividend?

Accepted Answer

All three options (regular cash dividend, special cash dividend, and stock dividend) are forms of corporate dividends. There is no option that is not a form of corporate dividend.

Question 16

Which of the following dividends does not actually involve the distribution of money?

Accepted Answer

Stock dividends involve the distribution of additional shares of the company's stock to existing shareholders, rather than a direct payment of cash.

Question 17

A common practice today is to have shares of stock in the ________ , using the name of the broker as owner rather than you.

Accepted Answer

The practice mentioned in the question is commonly referred to as holding shares in "street name," which means the shares are held by the broker rather than the individual investor, with the broker's name appearing on the securities records as the owner.

Question 18

The final distribution of cash to shareholders after a company has been sold off or discontinued operations is called a ________ dividend.

Accepted Answer

A liquidating dividend is paid when a company is winding up its operations or selling off its assets. This type of dividend is paid out to shareholders after all debts and obligations have been settled, and it represents the final distribution of the company's cash. Therefore, B) liquidating dividend is the best choice for the given scenario.

Question 19

The ________ is the date when the board of directors announces the next cash dividend to the public.

Accepted Answer

The declaration date is when the board of directors announces the next cash dividend to be paid to shareholders. The record date is the date on which a shareholder must be recorded as owning shares in order to receive the dividend, the payment date is when the dividend is actually paid out to shareholders, and the ex-dividend date is the date on which a stock begins trading without the value of its next dividend payment.

Question 20

Identify each of the following dates associated with the payment of a dividend by Jefferson State Timber Company: August 15, September 5, September 7, and September 22.

Accepted Answer

The correct sequence for dividend payment process is: Declaration Date (the date the company announces the dividend payment), Ex-Dividend Date (the date by which you must own the stock to receive the dividend, typically two business days before the Record Date), Record Date (the date on which the company looks at its records to determine the shareholders eligible for the dividend), and Payment Date (the date the dividend is actually paid to the shareholders).

Quiz 17: Dividends, Dividend Policy, and Stock Splits