Question 1

The dividend yield on a share of common stock is

Accepted Answer

The dividend yield on a share of common stock is calculated by dividing the annual dividends by the market price of the stock. It is not related to taxes on reinvested dividends, and while it is available for most large companies, it is not necessarily true for all companies. Therefore, option B is the correct answer.

Question 2

You purchased 100 shares of Quantex at $150 per share for a total investment of $15,000.After your purchase the stock had a 3 for 1 split.How many shares do you now own and how much is your original investment now worth?

Accepted Answer

After a 3 for 1 stock split, you would own 3 times the number of shares you originally had, so 100 shares become 300 shares. However, the total value of your investment remains the same, $15,000, because the split does not change the total value of your investment, just the number of shares and the price per share.

Question 3

The book value of a company is calculated by

Accepted Answer

The book value of a company is calculated by subtracting the value of all the firm's liabilities from the value of its assets. This equation ("Assets − Liabilities = Equity") is also known as the company's net asset value or shareholder's equity. It represents the theoretical value of the company's assets that would be left over after all of its liabilities are paid off.

Question 4

Nathan noticed that a company that has great potential just declared a ________ because its stock price was getting too high for the small investor to buy the stock.The company will substitute more shares for the existing shares of stock without increasing the market value of the firm.

Accepted Answer

A stock split is when a company increases the number of shares outstanding by issuing more shares to current shareholders. This is done to lower the stock price and make it more accessible to small investors. The value of the company remains the same, but the stock price will decrease proportionally with the increase in shares.

Question 5

Your investment goal is to receive a stream of income from your investment.Which of the following would be important information to determine whether a particular stock purchase would suit your plan?

Accepted Answer

The most important information to determine whether a particular stock purchase would suit your plan of receiving a stream of income would be the dividend yield. This tells you the percentage of the stock's price that is returned to investors in the form of dividends. The higher the dividend yield, the more income you would receive from your investment. Earnings per share and book value are important metrics for evaluating a company's financial health, but they do not necessarily indicate how much income an investor would receive. The market-to-book ratio compares a company's market value to its book value and can be used to assess the stock's valuation, but it does not directly relate to the amount of income an investor would receive from the investment.

Question 6

What point marks the purchase of common stock without a right to a declared dividend?

Accepted Answer

The ex-dividend date is the point at which a purchase of common stock no longer entitles the buyer to receive the next declared dividend. This is because the dividend is typically paid out to shareholders of record on a certain date, and the ex-dividend date marks the cut-off point for determining who is a shareholder of record. Buying stock on or after the ex-dividend date means the buyer is not entitled to the next declared dividend.

Question 7

The ________ date is the date the stock begins trading without dividend,meaning that if you buy it after this date you will not get the dividend for that year.

Accepted Answer

The ex-dividend date is the date on or after which a security is traded without a previously declared dividend or distribution. If a stock is purchased on or after the ex-dividend date, the buyer will not receive the next dividend payment. The other answer options don't pertain to this specific situation.

Question 8

The firm will pay an annual dividend this year of $2 per share.The current market price of the stock is $40.00 per share.The book value of this stock is $24.00 per share.The earnings per share for this firm is $5.75.What is the current dividend yield of this stock?

Accepted Answer

The current dividend yield is calculated by dividing the annual dividend per share by the current market price per share. Thus, $2 / $40.00 = 0.05 or 5%.

Question 9

What are proxy fights?

Accepted Answer

Proxy fights are battles for proxy votes between rival groups of shareholders within the same company. These battles typically involve attempts to sway shareholders to vote for or against certain proposals, such as board of director appointments or mergers and acquisitions. The goal of the rival groups is to gain control of the company or steer its direction in a certain way.

Question 10

When a company buys back its own common stock it is engaging in a

Accepted Answer

When a company buys back its own common stock it is engaging in a stock repurchase, also known as share buyback. This is when the company buys its own outstanding shares in order to reduce the number of shares available on the market. This can increase the value of the remaining shares and signal to investors that the company has confidence in its own financial outlook. A stock split is when a company increases the number of shares outstanding by issuing more shares to shareholders. A stock reissue is not a commonly used term in finance. A stock repo is a short-term loan that uses stocks as collateral.

Question 11

Common stockholders are entitled to elect the company's board of directors.Usually one share of stock is equal to ________ vote(s).

Accepted Answer

Generally, common stockholders are entitled to one vote per share of stock they own. Therefore, one share of stock is equal to one vote.

Question 12

As a shareholder in Titanic Shipping,Inc.,James Blue is one of the many actual owners.In case of the bankruptcy of the corporation,his liability would be limited to

Accepted Answer

As a shareholder, James Blue's liability is limited to the amount of his investment. This means that if Titanic Shipping, Inc. were to go bankrupt and there were outstanding debts owed by the corporation, James Blue would not be personally responsible for repaying those debts beyond the amount of his investment in the company.

Question 13

A(n)________ is a legal agreement signed by a stockholder allowing someone else to vote on his or her behalf at the corporation's annual meeting.

Accepted Answer

A proxy is a legal document that authorizes one person to act on behalf of another person. In this case, a stockholder signs a proxy allowing someone else to vote on his or her behalf at the corporation's annual meeting. A voting contract, agency contract, and contingency contract are not applicable in this context.

Question 14

The net income of the firm is $4 million dollars.The firm will pay $500,000 in dividends to the preferred shareholders.There are currently 1 million shares of common stock outstanding.What are the earnings per share for this firm?

Accepted Answer

First, we subtract the dividend payment to preferred shareholders from net income:
$4,000,000 - $500,000 = $3,500,000

Then, we divide by the number of outstanding common shares:
$3,500,000 / 1,000,000 = $3.50 per share.

Question 15

Which of the following statements is most correct regarding the general relationship between stocks and interest rates?

Accepted Answer

Generally, as interest rates increase, the cost of borrowing money increases, which can reduce company profits and ultimately lead to lower stock prices. Additionally, higher interest rates can make fixed-income securities like bonds more attractive to investors, potentially reducing demand for stocks. However, it's important to note that there may be other factors influencing stock prices beyond interest rates.

Question 16

The ________ is the date on which the board of directors announces the amount of the dividend.

Accepted Answer

The declaration date is the date on which the board of directors announces the amount of the dividend to be paid to shareholders. This information is often reported in a press release or a filing with the Securities and Exchange Commission (SEC).

Question 17

A proxy vote means

Accepted Answer

A proxy vote means giving a representative the right to vote in your place, allowing them to cast your vote on your behalf.

Question 18

________ are a company's distribution of its profits in the form of cash or stock to its owners.

Accepted Answer

Dividends are specifically the distribution of profits to a company's owners/shareholders. Coupon interest payments are related to debt securities, not equity. Equity payments and shareholder divestments are not specific terms related to the distribution of profits.

Question 19

You are really keen on stocks.However,you do not like stocks with regard to ________.This means that if a company you have invested in goes bankrupt,the creditors are paid first and you will be out of luck.

Accepted Answer

The correct answer is C) claims on assets. This is because in the event of a company's bankruptcy, creditors have priority over shareholders when it comes to claims on the company's assets. Shareholders, especially those holding common stock, are last in line and may lose their investment if the company's assets are insufficient to pay its debts.

Question 20

A ________ increases the number of stock shares outstanding by replacing each existing share of stock with a stated number of new shares.

Accepted Answer

A stock split increases the number of shares outstanding by dividing the existing shares into a larger number of shares. For example, a 2-for-1 stock split would double the number of shares outstanding by replacing each existing share with two new shares. This is often done to make the stock more affordable to individual investors and increase liquidity. Dividend reinvestment involves using dividends to purchase additional shares, while a stock repurchase involves a company buying back its own shares. Stock reissue is not a commonly used term in finance.

Quiz 12: Investing in Stocks