Question 1

The most important priority that an investor in common stock enjoys is receiving cash dividends before preferred stockholders are paid any cash dividends.

Accepted Answer

Preferred stockholders have priority over common stockholders when it comes to receiving cash dividends.

Question 2

Corporations issue preferred stock because it provides an alternative to financing through corporate bonds or common stock.

Accepted Answer

Preferred stock allows corporations to raise funds without taking on debt through bonds or diluting ownership through issuing more common stock.

Question 3

If a corporation has more than one stock issue,the common stock is always listed first.

Accepted Answer

True

Question 4

A stock split is a procedure in which a stockholder's common stock is exchanged for preferred stock.

Accepted Answer

A stock split is a procedure in which a company increases the number of shares outstanding by issuing more shares to current shareholders, reducing the price per share. It does not involve exchanging common stock for preferred stock.

Question 5

The record date is the date that the actual dividend payment is made to stockholders.

Accepted Answer

The record date is the date that determines which shareholders are eligible to receive the dividend payment. The actual dividend payment is typically made a few days or weeks after the record date.

Question 6

A blue-chip stock is too speculative for most investors.

Accepted Answer

Blue-chip stocks are considered less speculative and less risky than many other stocks, and are often favored by conservative investors.

Question 7

Convertible preferred stock may be exchanged,at the corporation's option,for a specified number of shares of common stock.

Accepted Answer

The answer of Convertible preferred stock may be exchanged,at the...

Question 8

The price-earnings ratio is calculated by dividing the earnings per share of a stock by its fair market value.

Accepted Answer

The price-earnings ratio is calculated by dividing the market price per share by the earnings per share of a stock.

Question 9

A stock that pays higher than average dividends is called an income stock.

Accepted Answer

An income stock is a stock that pays higher than average dividends, which makes it attractive to investors, especially those seeking regular income.

Question 10

A cyclical stock is a stock that follows the business cycle of advances and declines in the economy.

Accepted Answer

A cyclical stock is one that is heavily influenced by the ups and downs of the economy. When the economy is performing well, a cyclical stock tends to do well too. Conversely, when the economy is in decline, the stock tends to struggle. Examples of cyclical stocks include those in the automotive, construction, and retail industries.

Question 11

Today,it is possible for investors to access a corporation's home page in order to evaluate an investment in its stock.

Accepted Answer

Yes, it is true that investors can access a corporation's home page to evaluate an investment in its stock. This is made possible through the internet and the availability of corporate information online.

Question 12

A proxy is a legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individual or individuals.

Accepted Answer

This statement accurately describes what a proxy is.

Question 13

A defensive stock is a stock that typically sells for less than $l.

Accepted Answer

A defensive stock is a stock that generally maintains stable earnings and dividends during economic downturns. The stock price may fluctuate, but it is not necessarily limited to a specific price range.

Question 14

Dividend payments on common stock are guaranteed,but the amount is determined by the board of directors.

Accepted Answer

Dividend payments on common stock are not guaranteed and the amount is determined by the board of directors, but can vary or even be suspended depending on the company's financial performance and other factors.

Question 15

Preferred stocks are often referred to as "middle" investments.

Accepted Answer

Preferred stocks are considered to be in the middle of the risk-reward spectrum between common stocks and bonds. They offer higher yields than bonds but are less risky than common stocks.

Question 16

A public corporation is a corporation whose stock is owned by relatively few people and is not traded openly in the stock market.

Accepted Answer

A public corporation is actually a corporation whose stock is widely traded on the stock market and may be owned by a large number of shareholders.

Question 17

The term securities encompass a broad range of investments that include stocks,bonds,mutual funds,options,and commodities.

Accepted Answer

The statement is true. Securities are a diverse set of financial instruments that include stocks, bonds, mutual funds, options, and commodities.

Question 18

If an investor owns participating preferred stock,missed or omitted dividends accumulate and must be paid before any cash dividend is paid to common stockholders.

Accepted Answer

Participating preferred stock typically refers to the feature where these shareholders can receive additional dividends beyond their fixed dividend if the company achieves certain financial goals, not to the accumulation of missed or omitted dividends. Accumulation of missed dividends is a characteristic of cumulative preferred stock, not specifically participating preferred stock.

Question 19

The Cumulative feature of a preferred stock is that a corporation may exchange,at its option,for a specified amount of money.

Accepted Answer

The cumulative feature of a preferred stock refers to the requirement that if any dividends are missed, they must be paid out to preferred shareholders before any dividends can be distributed to common shareholders. It does not relate to exchanging the stock for money.

Question 20

A large-cap stock is a stock issued by a company that has capitalization of $150 million or less.

Accepted Answer

A large-cap stock is a stock issued by a company that has capitalization of $10 billion or more, not $150 million.

Quiz 11: Investing Basics and Evaluating Bonds