Question 1

Each share of common stock provides the investor with a ________ right that offers the investor the first right to purchase any new shares of common stock the firm decides to issue.This allows common stockholders to maintain a proportional share of ownership in the company.

Accepted Answer

The right described in the question is known as a preemptive right. This right allows existing common stockholders to purchase additional shares of stock before they are offered to the general public, ensuring that they maintain their proportional ownership stake in the company. The other choices (participating, cumulative, and convertible) do not refer to this specific right.

Question 2

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

The statement suggests that the stock is cumulative preferred, which means that any missed dividends must be paid before any future common stock dividends can be paid.

Question 3

Investors in ________ preferred stock receive a guarantee that missed dividends will accumulate and potentially be paid later.

Accepted Answer

Investors in cumulative preferred stock receive a guarantee that missed dividends will accumulate and potentially be paid later. This means if the company misses a dividend payment, it will accumulate and the company will be required to pay it before they can pay any dividends to common shareholders.

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

It is important for investors to do their proper research before investing in a company's stock. This includes researching the company's financial statements, business model, and dividend history. In this case, Greg could have avoided the disappointment of not receiving a dividend by doing his due diligence beforehand. Filing a lawsuit or going after the registered representative would not be appropriate in this situation, as the lack of dividend was likely disclosed in the company's financial statements and other public documents. Selling the shares is an option, but it may not be the best course of action if Greg believes the stock has potential for growth in the future.

Question 5

Similar to bond investments,preferred shares can be _________,meaning the firm may buy them back.

Accepted Answer

Preferred shares can be callable, which means the issuing company has the option to repurchase them from investors at a predetermined price. This feature provides flexibility for the issuer and may be used if interest rates decline, allowing the issuer to reissue shares at a lower dividend rate.

Question 6

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 guarantees that any missed dividends will accumulate and be paid out to preferred stockholders before any dividends are paid to common stockholders. This provides a level of security and stability for preferred stockholders.

Question 7

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

Accepted Answer

Selling stock to obtain long-term financing may result in a change in management and policies in the company if the new stockholders exercise their voting rights to have a say in the company's direction. This can be a disadvantage if the current management and policies are successful and valued by existing shareholders. Additionally, the other options are not accurate: A) paying dividends is not a legal obligation for a company that issues common stock, B) funds contributed by stockholders do not have to be repaid, and C) selling stock should not have an impact on the market value of the firm's products.

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 $50 per share indicates the minimum amount that must be paid to the shareholder upon the liquidation of the company. It does not necessarily reflect the current market value of the shares, which can vary based on market conditions. The shareholder may receive dividends based on the par value per share, but this is not necessarily guaranteed. The par value of the stock does not indicate any specific dividend amount that must be paid to the shareholder.

Question 9

The dollar amount assigned to shares of stock by the corporation's charter represents the stock's:

Accepted Answer

The dollar amount assigned to shares of stock by the corporation's charter represents the stock's par value. This is a nominal value assigned by the company to its shares and has no connection to the market value, net asset value, or legal value of the stock.

Question 10

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 have voting rights in elections for the board of directors.

Question 11

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 decides to offer stock to the general public, it becomes a publicly traded company, which means that shareholders can exercise their right to vote and have a say in the company's management and policies. This can have a significant impact on the company, as shareholders may demand changes in leadership, strategy, or operations. The other options (A, B, and C) are not necessarily true for all companies and may depend on the company's specific financial situation and decisions.

Question 12

When issuing stock to obtain long-term funding,dividend payments are:

Accepted Answer

Dividend payments are not tax deductible for the issuing firm.

Question 13

Dividends are paid out of a corporation's:

Accepted Answer

Dividends are paid out of a corporation's profits after taxes have been paid.

Question 14

Dividends on preferred stock are:

Accepted Answer

Dividends on preferred stock are normally fixed, meaning that they are a set amount determined at the time the stock is issued. However, the payment of dividends on preferred stock is not guaranteed and can be suspended or reduced by the company's board of directors. Also, dividends on preferred stock are paid before common stock dividends, but after any debts or expenses are paid. Dividends on preferred stock may be greater than or less than dividends on common stock depending on the specific terms of the stock.

Question 15

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

Preemptive rights allow a shareholder to maintain their percentage of ownership in a company by giving them the right to purchase new shares before they are offered to the public. Maureen owns 20% of the current common stock, so she has the right to purchase 20% of the new shares offered, which would be 2,000 shares (20% of 10,000 shares).

Question 16

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

Accepted Answer

Dividend payments are a portion of the company's profits that are distributed to its stockholders.

Question 17

Stock certificates represent evidence of ownership in an organization.A stock certificate contains which of the following?

Accepted Answer

The answer of Stock certificates represent evidence of ownership in...

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

The answer of Maggie owns 10% or 50,000 common shares...

Question 19

When investors purchase ________ stock,they receive a priority claim in the payment of dividends,as well as assets,if the business is liquidated.However,these investors do not have voting rights.

Accepted Answer

Preferred stock is a type of stock that typically offers a fixed dividend and priority claim in the payment of dividends and assets. However, preferred stockholders usually do not have voting rights. Common stock (A) usually offers voting rights but does not have a fixed dividend or priority claim. Secured (C) and debenture (D) refer to different types of debts, not stocks.

Question 20

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 claim on dividend payments and on the firm's assets in the event of liquidation, but does not typically offer voting rights to shareholders. Common stock, on the other hand, generally offers voting rights but does not have the same priority as preferred stock in receiving dividend payments and assets in liquidation. Superior and callable are not types of stock ownership.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities