Question 1

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 fact that Tyrone's stock certificate states that any missed dividends will be paid prior to any future common stock dividend payments indicates that he owns cumulative preferred stock.

Question 2

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 3

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 a company's profits that are distributed to its shareholders. This is different from an increase in market share or the current value of the firm's stock holdings. While dividend payments may be taxed, they are not specifically sheltered from taxes.

Question 4

Dividends on preferred stock are:

Accepted Answer

Dividends on preferred stock are typically fixed, meaning they are a predetermined amount and paid out regularly, but only if and when dividends are paid. They are not guaranteed and may be paid before or after dividends to common stockholders, depending on the terms of the preferred stock. Dividends on preferred stock can be higher or lower than those on common stock.

Question 5

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

Accepted Answer

Cumulative preferred stock guarantees that any missed dividends will accumulate and must eventually be paid to the stockholder. Participating preferred stock allows the owner to receive extra dividends if the company surpasses a certain profit threshold. Superior and convertible are not types of preferred stock.

Question 6

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

Accepted Answer

Preferred shares can be callable, meaning the firm has the option to buy them back at a predetermined price. Cumulative refers to the feature where missed dividend payments accumulate and must be paid in full before common shareholders receive any dividends. Responsive and retroactive are not relevant or accurate descriptions of preferred shares.

Question 7

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 the minimum price at which the stock can be issued and is often used to determine the initial price at which the stock will be sold to investors. It is not necessarily related to the stock's market value or net asset value.

Question 8

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

Accepted Answer

Dividend payments on stock are not tax deductible for the issuing company.

Question 9

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 because it is important to ensure that all financial obligations, including taxes, are first met before distributing profits to shareholders in the form of dividends.

Question 10

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 privately held corporation goes public and offers stocks to the general public, shareholders become part owners of the company and are vested with the right to vote on future board members and significant corporate decisions, effectively having a say in company management and policies.

Question 11

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

The answer of When investors purchase ________ stock,they receive a...

Question 12

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 assets in liquidation, but does not usually offer voting rights. Common stock, on the other hand, offers voting rights but may not have priority claim on dividends or assets. Superior stock and callable stock are not common terms in stock ownership.

Question 13

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 common stockholders have voting rights, so Mark must own common stock in Microsoft to have cast four votes in the election.

Question 14

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 is the right that each share of common stock provides the investor with. This right 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.

Question 15

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 to preferred stockholders before any dividends are paid to common stockholders. This means that if a company misses paying a dividend to preferred stockholders, they must pay these missed dividends in the future before paying any new dividends to common stockholders. Call provision allows the issuer to redeem or call back the preferred stock at a certain price, while participating preferred stock allows preferred stockholders to receive additional dividends above the stated dividend rate if the company performs well. Convertible preferred stock allows preferred stockholders to convert their shares into common stock at a predetermined conversion ratio.

Question 16

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 proper research before investing in a stock. One of the factors to consider is whether the stock pays a dividend or not. Greg should learn from this experience and make sure to do his due diligence before making any future investments. Hiring an attorney or selling the shares immediately may not be necessary or wise decisions.

Question 17

___________ are the firm's after tax profits that are distributed to stockholders.

Accepted Answer

Dividends are the firm's profits that are distributed to stockholders after tax has been paid. Equity capital refers to the total amount of funds that the company has raised by issuing shares to investors. Interest payments are the payments made by the company to external creditors for borrowing funds. Retained earnings are the portion of profits that the company retains and reinvests for future growth and expansion.

Question 18

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 existing shareholders to have the first opportunity to purchase new shares before they are offered to the general public. Maureen owns 20% of the common stock, so she has the right to purchase 20% of the new shares being offered, which is 2,000 shares (20% of 10,000). Therefore, choice B is the correct answer. Choice C is not specific to Maureen's ownership percentage and is too broad. Choice D is unrelated to the scenario and is not a viable option.

Question 19

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

Accepted Answer

Selling stock to obtain long-term financing may result in a possible change in management and policies in the company as new shareholders may demand a say in the company's decision-making process. The other options listed - paying dividends, repayment from after tax profits, and reduction in market value of products - are not direct disadvantages of selling stock but may be potential consequences or obligations of having shareholders.

Question 20

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 value of the stock, but it does not necessarily mean Tong Su will never get less than $50 per share when selling the stock. The current worth of the stock may be higher or lower than the par value. However, Tong Su may receive dividends based on the par value per share, as the dividends are often calculated as a percentage of the par value. The par value does not indicate anything about a required dividend payment.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities