Question 1

Maureen owns 20% of the common stock of the Queen Bean Corporation.The company announced plans to offer an additional 10,000 shares of common stock for sale.If Maureen exercises her preemptive rights,Queen Bean must offer her the opportunity to purchase:

Accepted Answer

Maureen owns 20% of the common stock of Queen Bean Corporation, so she can exercise her preemptive rights to purchase 20% of the new shares being offered. 
Therefore, the number of shares Maureen can purchase is equal to 20% of 10,000 shares, which is 2,000 shares. Option B is the only choice that matches this calculation. Option C is incorrect because while investors may be able to purchase as many of the new shares as they want, Maureen's purchase limit is constrained by her 20% ownership stake. Option A and D are also incorrect because they do not correctly calculate Maureen's purchase limit based on her ownership stake.

Question 2

The corporate certificate issued to an investor that has loaned money to the corporation or government is called a:

Accepted Answer

A corporate certificate issued to an investor that has loaned money to the corporation or government is typically a bond. Common and preferred stocks represent ownership in the company, while a debt document is a more general term that can refer to any type of contract or agreement related to borrowing money.

Question 3

Ellie owns stock in Rotary Technologies.Her stock provides a priority claim on dividend payments and on the firm's assets in the event of liquidation.However,her ________ stock ownership does not offer her voting rights.

Accepted Answer

Preferred stock provides priority claims on dividend payments and on the firm's assets in the event of liquidation, but typically does not offer voting rights. Common stock, on the other hand, usually offers voting rights but does not have priority in receiving dividends or the firm's assets during liquidation. Superior and callable are not types of stock ownership.

Question 4

Greg purchased 2000 shares of common stock of the Rite Track Corporation last year.He learned several months later that the stock does not pay a dividend.Greg should proceed to:

Accepted Answer

Before making any investment, it is important to do proper research about the company, its business model, financial statements, and whether or not it pays dividends. Greg should have done his due diligence before investing in Rite Track Corporation. Since the stock does not pay dividends, Greg can either continue to hold the stock in the hopes that its value will appreciate or sell the shares if he needs the capital or thinks that the stock is not likely to increase in value. However, suing or going after the broker is not a feasible option in this case since Rite Track Corporation is not obligated to pay dividends, and it is the investor's responsibility to make informed investment decisions.

Question 5

The disadvantages of selling stock to obtain long-term financing include:

Accepted Answer

Selling stock to obtain long-term financing often results in a dilution of ownership and control, as new shareholders may have a say in the company's decisions and operations. This could lead to a possible change in management and policies, which may not align with the current owners' vision for the company.

Question 6

A share of preferred stock currently sells for $120.It offers the investor a dividend rate of 8%,on a par value of $100.If the investor owns 500 shares,her total annual dividend will equal:

Accepted Answer

The answer of A share of preferred stock currently sells...

Question 7

After many years as a privately held corporation,Connecticut Industries decided to offer stock to the general public.Connecticut may discover that stockholders:

Accepted Answer

When a company goes public and offers stock to the general public, shareholders can purchase shares and become owners of the company. As owners, they have the right to vote on important decisions such as electing board members and approving major company policies. This gives them a significant impact on company management and policies. Shareholders do not expect to be repaid at a future date and dividend payments are not legally required if the corporation maintains profitability. The company's debt level may or may not be affected, as it depends on how the company uses the funds raised from the offering.

Question 8

When Tong Su purchased 500 shares of preferred stock in the Vibrates Corporation,his certificate indicated the stock had a par value of $50 per share.This means that Tong Su:

Accepted Answer

The par value of a stock is the initial value assigned to it when it is first issued. It is not an indication of the current market value of the stock. Therefore, Tong Su may receive dividends based on this value per share, but it does not guarantee he will never get less than $50 per share when selling his stock or that his shares are currently worth $50 per share. Additionally, the par value does not determine the amount of dividends that must be paid out each year, so option D is not relevant.

Question 9

Which of the following securities guarantees preferred stockholders payment of missed dividends before any dividends are paid to common stockholders?

Accepted Answer

Cumulative preferred stock entitles holders to receive all missed dividends before any dividends are paid to common stockholders. Participating preferred stock allows holders to receive additional dividends if the company exceeds certain profit thresholds, while convertible preferred stock can be converted into a predetermined number of common shares at the shareholder's discretion. The call provision enables the issuer to redeem the security before maturity.

Question 10

Issuing bonds to obtain long-term funds legally compels a firm to pay regular ________ payments and repay the ________ at the maturity date.

Accepted Answer

Issuing bonds legally obligates a company to make regular interest payments to bondholders until the maturity date, and to repay the principal amount (also known as the bond's face value or par value) at the end of the bond's term. Therefore, the correct answer is D, interest payments and principal repayment.

Question 11

A Bond's face value is the same as its:

Accepted Answer

The face value of a bond is also known as its principal, which is the amount that the issuer borrows and promises to repay to the bondholder at maturity. The coupon value is the interest rate that the bond issuer pays to the bondholder on a regular basis, and the yield is the return that the bondholder receives on the bond, taking into account both the coupon payments and any capital gains or losses upon selling the bond. The risk rating is a measure of the creditworthiness of the bond issuer and is not directly related to the face value of the bond.

Question 12

Dividends on preferred stock are:

Accepted Answer

Preferred stock dividends are normally fixed, meaning they are set at a specific rate and paid out on a regular basis. However, the payment of these dividends is not guaranteed and may be suspended or reduced if the company experiences financial difficulties. Preferred stock dividends are paid before common stock dividends, but after any debt obligations have been met. Therefore, choice A is incorrect. The guarantee of preferred stock dividends also varies depending on the specific terms of the stock issuance, so choice B is not always accurate. Dividends on preferred stock may be higher or lower than those on common stock, depending on the specific terms of the stock issuance and the financial performance of the company, so choice D is not always accurate.

Question 13

Georgia Corporation,known for its very generous dividend policy,easily attracts investors.These dividend payments basically represent:

Accepted Answer

Dividend payments represent a portion of the company's profit that is distributed to its stockholders.

Question 14

Tyrone owns shares of ________ stock in New Jersey Power.His stock certificate states that any missed dividends will be paid prior to any future common stock dividend payments.

Accepted Answer

Tyrone owns shares of cumulative preferred stock. The fact that any missed dividends will be paid prior to any future common stock dividend payments indicates that the stock is cumulative preferred, which means that missed dividend payments accumulate and must be paid before any future common stock dividends can be paid.

Question 15

Dividends are paid out of a corporation's:

Accepted Answer

Dividends are paid out of a corporation's profit, after taxes. This means that the company has already paid taxes on its earnings and is distributing the remaining profits to its shareholders as dividends.

Question 16

The cost of a firm borrowing money is called the:

Accepted Answer

The cost of borrowing money is typically referred to as the interest rate. This is the amount that the borrowing firm pays to the lender in exchange for the ability to use the borrowed funds.

Question 17

Mark impresses his friends by stating that he just cast four votes in the election of the board of directors of Microsoft,indicating that Mark owns __________ stock in Microsoft.

Accepted Answer

Only holders of common stock are typically given voting rights in company elections. Preferred stockholders may receive dividends but typically do not have voting rights. Cumulative preferred stock may have voting rights, but the number of votes is generally based on the number of shares owned, rather than a set number of votes per share. Registered stock simply refers to the method by which shares are held and traded, and does not necessarily indicate voting rights.

Question 18

Maggie owns 10% or 50,000 common shares of a small biotech company.Although she has enjoyed a lot of control,Maggie realizes that in order for the firm to acquire the funds to grow in a recessionary economy,it will need to issue more stock.Unless she and others exercise preemptive rights,

Accepted Answer

Issuing more stock without exercising preemptive rights will dilute Maggie's ownership percentage in the company.

Question 19

Another name for the fixed rate of interest attached to a bond is the:

Accepted Answer

The fixed rate of interest attached to a bond is known as the coupon rate. This is the rate at which the issuer of the bond pays interest on the principal amount invested by the bondholder. The coupon rate is usually stated as a percentage of the bond’s face value, and it remains fixed throughout the life of the bond.

Question 20

Government bonds can vary in denomination,but most corporate bonds are issued in ____________.

Accepted Answer

Most corporate bonds are issued in $1000 denominations, which makes them affordable for individual investors as well as institutional investors.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities