Question 1

Which of the following statements is true of a capital gain?

Accepted Answer

A capital gain is the profit earned from selling an investment for more than its cost basis. This is a type of return on investment for common stockholders. Preferred stockholders may receive dividends as a return on their investment but do not typically participate in capital gains. Capital gains are not usually a stated amount and are instead dependent on market conditions and the timing of the sale of the investment. Interest paid on a bond is not a capital gain, but rather a form of regular income for the bondholder.

Question 2

The right to a residual claim on assets means that:

Accepted Answer

The right to a residual claim on assets means that common stockholders have a right to share in the proceeds from the liquidation of the corporation's assets in proportion to their ownership. This means that they have a claim on the remaining assets of the company after all other creditors, such as bondholders, have been paid.

Question 3

Which of the following is true of payment of dividends?

Accepted Answer

A corporation must pay the full dividend on its preferred stock before paying any dividends to its common stockholders.

Question 4

A _____ is a formal IOU issued by a corporation or government entity.

Accepted Answer

Bonds are a formal IOU issued by a corporation or government entity, representing a loan that the entity has taken out and agreed to pay back with interest. Liens are a legal claim on assets as collateral for a debt, stock certificates represent ownership in a corporation, and coupons are interest payments made to bondholders.

Question 5

A bond is selling at a _____ if the market price is above the par value.

Accepted Answer

When the market price of a bond is above the par value, it is said to be selling at a premium. This means that investors are willing to pay more than the face value of the bond because they believe it offers a better return or lower risk than other investments.

Question 6

You own 10 percent of the shares of common stock currently held in Zeerocks Corporation. At the most recent meeting, the board of directors authorized the sale of 100,000 new shares of stock to raise funds. As an existing stockholder, you may have a _____ to buy up to 10,000 shares of the new stock before it is offered to the public.

Accepted Answer

The right to buy new shares of stock before they are offered to the public is called a preemptive right. This allows existing shareholders to maintain their proportional ownership in the company and avoid dilution of their shares. The other options given do not accurately describe this type of right.

Question 7

Elaina wants to make an investment in a public company. She wants to buy stock that not only pays her a comfortable dividend on a regular basis, but also gives her a significant say in the company's major decisions. What kind of investment should she make?

Accepted Answer

Common stock is the only type of stock that provides voting rights to shareholders. Preferred stock typically does not provide voting rights, but rather guarantees a fixed dividend payment. While some common stock may have a cumulative provision for dividends, it is not a guarantee and is not necessary for the goal of having a say in major company decisions. Therefore, purchasing common stock is the best choice for Elaina's specific investment goals.

Question 8

The basic types of securities corporations issue to raise long­term financial capital include:

Accepted Answer

Common stock, preferred stock, and bonds are the most common types of securities corporations issue to raise long-term financial capital. Common stock represents ownership in the company and often includes voting rights. Preferred stock represents a hybrid between common stock and bonds, providing priority in receiving dividends and liquidation proceeds. Bonds are debt securities that represent a loan from investors to the issuing company and often pay fixed interest rates. Choices A, B, and D are not accurate.

Question 9

Dividends to common stockholders of a company are:

Accepted Answer

Dividends to common stockholders are a distribution of earnings that are paid only if declared by the company's board of directors. They are not legally required payments and are not tax-deductible expenses. They are also not directly related to the market price of the firm's stock in the secondary market.

Question 10

Diana owns 15 percent of the existing shares of stock in Cobalt Corp. The corporation is presently issuing new stock, and Diana buys 15 percent of the new shares to maintain her share of ownership in the company. By doing so, Diana is exercising the _____ of common stockholders.

Accepted Answer

Preemptive right is the right of common stockholders to maintain their proportionate ownership stake in a company by having the first right to buy new shares before they are offered to the public. By buying 15 percent of the new shares, Diana is exercising her preemptive right.

Question 11

Which of the following acts overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks?

Accepted Answer

The Financial Services Modernization Act of 1999, also known as the Gramm­Leach­Bliley Act, overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks.

Question 12

Deborah owns 100 shares of common stock in Azure Inc. She bought the stock at a price of $33 per share, and it is now selling at $46 per share. If she sells her stocks now, she will realize a(n) _____.

Accepted Answer

Deborah will realize a capital gain if she sells her stock now, as the selling price is higher than the price at which she bought the stock.

Question 13

Julia owns a bond with a $1,000 par value. If she decides to sell her bond on the secondary market before the maturity date, she:

Accepted Answer

The market price of bonds, like any other financial instrument, is subject to supply and demand forces that can push the price up or down. Therefore, the secondary market price of Julia's bond could be higher or lower than its par value of $1,000, depending on various factors, such as changes in interest rates, creditworthiness of the issuer, and overall market conditions.

Question 14

If you are a preferred stockholder at CDE Corporation and CDE goes out of business, your claim on the firm's assets:

Accepted Answer

Preferred stockholders have a higher claim on a firm's assets than common stockholders in case of bankruptcy or liquidation. Their claim takes precedence over common stockholders, but not over the claims of any creditors. However, it is limited to any preferred dividends the company has not paid.

Question 15

Preferred stockholders enjoy a preference over common stockholders with respect to _____.

Accepted Answer

Preferred stockholders have a preference over common stockholders with respect to dividends. They are entitled to receive a fixed dividend before any dividends can be paid to common stockholders. They do not generally have voting rights, capital gains, or management control of the company.

Question 16

Rhombus Corp. is a rapidly growing company that just experienced a very profitable quarter. The company's board of directors has decided not to pay dividends to common stockholders. This suggests that:

Accepted Answer

The decision not to pay dividends suggests that the board has decided to reinvest the earnings in order to finance growth of the company. This is a common strategy used by companies that are rapidly growing and want to use their profits to expand their operations rather than distribute them to shareholders. It does not necessarily violate any obligations or laws, and preferred stockholders may still or may not receive dividends depending on their specific terms.

Question 17

The exact date when the issuing firm must repay the principal to a bondholder is known as the bond's _____ date.

Accepted Answer

The bond's maturity date is the exact date when the issuing firm must repay the principal to a bondholder, making choice B the correct answer. The coupon is the interest payment made to bondholders at regular intervals, the ex-dividend date applies to stocks and determines which shareholders are entitled to receive the next dividend payment, and the conversion date is the date by which a convertible bond can be converted into stock.

Question 18

A _____ is the return on an asset that results when its market price rises above the price an investor paid for it.

Accepted Answer

A capital gain is the profit realized when an asset is sold at a higher price than the original purchase price. This can be seen as a return on investment for the investor. A dividend is a distribution of a portion of a company's earnings to its shareholders, which is not related to the market price of the asset. Surplus value and superprofit are concepts related to Marxist economics and not typically used in mainstream finance.

Question 19

The _____ on a bond expresses the annual interest payment as a percentage of the bond's par value.

Accepted Answer

The coupon rate on a bond is the percentage of the bond's par value that will be paid out annually as interest to bondholders.

Question 20

On which of the following issues can common stockholders of a corporation vote, but it is non­binding on the corporation?

Accepted Answer

Common stockholders can vote on executive compensation policies, but their vote is non-binding, meaning that the corporation is not required to follow their decision. The selection of members to the board of directors (A), approval of a merger (B), and changes to the corporation's bylaws (D) are all binding votes that have legal implications for the corporation.

Quiz 10: Securities Markets: Trading Financial Resources

Which of the following statements is true of a capital gain?

The right to a residual claim on assets means that:

Which of the following is true of payment of dividends?

A _____ is a formal IOU issued by a corporation or government entity.

A bond is selling at a _____ if the market price is above the par value.

Elaina wants to make an investment in a public company. She wants to buy stock that not only pays her a comfortable dividend on a regular basis, but also gives her a significant say in the company's major decisions. What kind of investment should she make?

The basic types of securities corporations issue to raise longterm financial capital include:

Dividends to common stockholders of a company are:

Diana owns 15 percent of the existing shares of stock in Cobalt Corp. The corporation is presently issuing new stock, and Diana buys 15 percent of the new shares to maintain her share of ownership in the company. By doing so, Diana is exercising the _____ of common stockholders.

Which of the following acts overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks?

Deborah owns 100 shares of common stock in Azure Inc. She bought the stock at a price of $33 per share, and it is now selling at $46 per share. If she sells her stocks now, she will realize a(n) _____.

Julia owns a bond with a $1,000 par value. If she decides to sell her bond on the secondary market before the maturity date, she:

If you are a preferred stockholder at CDE Corporation and CDE goes out of business, your claim on the firm's assets:

Preferred stockholders enjoy a preference over common stockholders with respect to _____.

Rhombus Corp. is a rapidly growing company that just experienced a very profitable quarter. The company's board of directors has decided not to pay dividends to common stockholders. This suggests that:

The exact date when the issuing firm must repay the principal to a bondholder is known as the bond's _____ date.

A _____ is the return on an asset that results when its market price rises above the price an investor paid for it.

The _____ on a bond expresses the annual interest payment as a percentage of the bond's par value.

On which of the following issues can common stockholders of a corporation vote, but it is nonbinding on the corporation?

Quiz 10: Securities Markets: Trading Financial Resources

Which of the following statements is true of a capital gain?

The right to a residual claim on assets means that:

Which of the following is true of payment of dividends?

A _____ is a formal IOU issued by a corporation or government entity.

A bond is selling at a _____ if the market price is above the par value.

Elaina wants to make an investment in a public company. She wants to buy stock that not only pays her a comfortable dividend on a regular basis, but also gives her a significant say in the company's major decisions. What kind of investment should she make?

The basic types of securities corporations issue to raise long­term financial capital include:

Dividends to common stockholders of a company are:

Diana owns 15 percent of the existing shares of stock in Cobalt Corp. The corporation is presently issuing new stock, and Diana buys 15 percent of the new shares to maintain her share of ownership in the company. By doing so, Diana is exercising the _____ of common stockholders.

Which of the following acts overturned the section of the Banking Act of 1933 that prohibited commercial banks from selling insurance or performing the functions of investment banks?

Deborah owns 100 shares of common stock in Azure Inc. She bought the stock at a price of $33 per share, and it is now selling at $46 per share. If she sells her stocks now, she will realize a(n) _____.

Julia owns a bond with a $1,000 par value. If she decides to sell her bond on the secondary market before the maturity date, she:

If you are a preferred stockholder at CDE Corporation and CDE goes out of business, your claim on the firm's assets:

Preferred stockholders enjoy a preference over common stockholders with respect to _____.

Rhombus Corp. is a rapidly growing company that just experienced a very profitable quarter. The company's board of directors has decided not to pay dividends to common stockholders. This suggests that:

The exact date when the issuing firm must repay the principal to a bondholder is known as the bond's _____ date.

A _____ is the return on an asset that results when its market price rises above the price an investor paid for it.

The _____ on a bond expresses the annual interest payment as a percentage of the bond's par value.

On which of the following issues can common stockholders of a corporation vote, but it is non­binding on the corporation?

The basic types of securities corporations issue to raise longterm financial capital include:

On which of the following issues can common stockholders of a corporation vote, but it is nonbinding on the corporation?