Personal Finance 1st Edition by Jack R. Kapoor

Exercise 6

1. Why do corporations issue common stock?

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2. Describe the two reasons why investors purchase common stock.

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3. Why do corporations split their stock? Is a stock split good or bad for investors?

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4. What is the most important priority a preferred stockholder has compared to common stockholders?

Action Application Based on your investment goals and discussions with family and friends, determine if common or preferred stocks can help you obtain your investment goals.

Step 1 of 3

1. Corporations sell common stock to finance their business start-up costs and help pay for expansion and their ongoing business activities. Since common stock is a form of equity financing, it does not have to be repaid and dividends are not necessary.