Question 1

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

Accepted Answer

Dividend payments represent a distribution of a portion of the company's profits to its stockholders.

Question 2

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

By offering stock to the public, Connecticut Industries will have new shareholders who may be able to exercise significant influence over company management and policies by voting on corporate matters such as electing board members or approving major business decisions. Shareholders may also potentially exert pressure for dividend payments, but this is not a mandatory requirement as stated in choice B. Debt levels may also be affected by issuing stock, but this is not the primary concern in this scenario.

Question 3

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 represents the minimum amount at which it can be issued and does not necessarily reflect its current market value. Therefore, Tong Su's shares may be worth more or less than $50 per share at any given time. However, the par value can be used to calculate dividends, and Tong Su may receive dividends based on the $50 par value per share.

Question 4

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 requires a firm to pay regular interest payments (not dividends) to the bondholders and to repay the principal (not par value or maturity value) at the maturity date. Therefore, option D is the correct choice.

Question 5

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 payment of missed dividends before any dividends are paid to common stockholders. Participating preferred stock allows the holders to participate in additional profits beyond the stated dividend rate, while convertible preferred stock allows the holder to convert their shares into common stock. The call provision allows the issuer to redeem the shares at a specific price and date.

Question 6

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

The answer of Mark impresses his friends by stating that...

Question 7

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

Preemptive right allows common stockholders to maintain their proportional ownership in the company by offering them the first right to purchase any new shares of common stock before they are offered to the public. Participating right allows the investor to participate in additional profits after a certain point, cumulative right ensures that missed dividends will accrue and be paid in the future, and convertible right allows the investor to convert their shares into a different type of security, such as preferred stock or bonds.

Question 8

Dividends on preferred stock are:

Accepted Answer

Dividends on preferred stock are typically fixed, meaning the rate at which they are paid is predetermined and does not fluctuate based on company performance. However, whether or not dividends are actually paid is still determined by the company's financial health and board of directors. Preferred stockholders typically receive their dividends before common stockholders, but this is not a guarantee. Dividend amounts on preferred stock are not necessarily always greater than those on common stock.

Question 9

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 10

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 11

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

If the biotech company issues more stock without Maggie and other current shareholders exercising their preemptive rights, it will dilute their ownership percentage. This means that Maggie will own a smaller percentage of the company, which could potentially decrease her control and influence over company decisions.

Question 12

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

Accepted Answer

A bond is a type of debt security that is issued by a corporation or government in order to raise money. Investors who buy bonds are essentially loaning money to the organization, and the bond certificate serves as proof of that loan. Preferred and common stocks, on the other hand, represent ownership in the company rather than a loan. "Debt document" is not a commonly used term in finance and is not a specific type of certificate.

Question 13

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 as new shareholders may have different expectations and demands. This can potentially lead to conflicts between the new shareholders and the existing management team, which could have negative effects on the company's overall performance. The other choices are incorrect as paying dividends is not a legal obligation, the funds contributed by stockholders do not have to be repaid, and selling stock does not directly impact the market value of a firm's products.

Question 14

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 on dividend payments and assets in the event of liquidation, but often does not offer voting rights to the owner. Common stock, on the other hand, typically offers voting rights but may not have priority on dividend payments or assets in the event of liquidation. Superior and callable are not types of stock ownership.

Question 15

The cost of a firm borrowing money is called the:

Accepted Answer

Interest rate is the cost of borrowing money. It is the percentage rate that a lender charges for lending money to a borrower. Dividend payment is a payment made by a corporation to its shareholders, not a cost of borrowing. Prime charge and opportunity charge are not commonly used terms in finance or economics.

Question 16

Dividends are paid out of a corporation's:

Accepted Answer

Dividends are typically paid out of a corporation's profit after taxes, also known as net income. This is the amount left over after all expenses and taxes have been paid.

Question 17

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 current common stock, so she has preemptive rights to purchase 20% of the new offering. The new offering is 10,000 shares, so 20% of that is 2,000 shares. Therefore, Maureen has the opportunity to purchase 2,000 shares if she exercises her preemptive rights.

Question 18

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

Accepted Answer

Preferred shares can be callable, meaning the company has the option to buy them back at a set price at a particular date. This feature gives the company flexibility and reduces their financial burden in the future if they need to raise capital.

Question 19

Greg purchased 2,000 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 own research before investing in any stock. This includes looking at a company's financial statements and dividend history. If Greg had done his research beforehand, he would have realized that Rite Track does not pay a dividend and could have made a more informed decision about whether or not to invest. Therefore, the best course of action for Greg is to learn from this experience and to do more thorough research before making future investment decisions.

Question 20

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

Accepted Answer

Dividend payments made to shareholders are not tax deductible for the company issuing the stock. This is because they are considered distributions of after-tax profits. However, dividend payments are still a common way for companies to provide a return to their shareholders for their investment.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities