Question 1

The preferred stock of a firm sometimes includes a cumulative feature. This means that:

Accepted Answer

A cumulative feature in preferred stock means that if dividends are skipped, they accumulate and must be paid in the future before any dividends can be paid to common stockholders.

Question 2

Elliot holds a bond in a health care company that matures after a period of ten years. Taken together with the interest on the principal amount, on maturity, Elliot will receive a sum of $55,000, which is the bond's _____.

Accepted Answer

The par value of a bond is the amount that the bondholder will receive at maturity, including the principal and any interest.

Question 3

Which of the following is a difference between common stockholders and preferred stockholders?

Accepted Answer

The answer of Which of the following is a difference...

Question 4

If Carl is a preferred stockholder at Cedia Inc., and Cedia goes out of business, Carl's claim on the firm's assets:

Accepted Answer

Preferred stockholders have a higher claim on assets than common stockholders in the event of liquidation, but they are behind creditors.

Question 5

Aaron buys 300 shares in a tobacco company. Within a year, he receives a capital gain on his stocks. This means that:

Accepted Answer

A capital gain occurs when the price of the shares increases in the market, allowing the shareholder to sell them at a higher price than the purchase price, resulting in a profit.

Question 6

Which of the following statements is true of bonds?

Accepted Answer

When a bond's market price is below its par value, it is considered to be selling at a discount. This occurs when the bond's yield is higher than the coupon rate, often due to changes in interest rates or the issuer's creditworthiness.

Question 7

Jonathan is a common stockholder in an information technology firm. Owing to his right to a residual claim on assets, he is entitled to receive a share in the proceeds of the company that is proportionate to his ownership if the company:

Accepted Answer

As a common stockholder, Jonathan has a residual claim on the company's assets, meaning he is entitled to a share of the remaining assets after all debts and obligations have been settled if the company goes out of business.

Question 8

Which of the following explains the preemptive right of common stockholders?

Accepted Answer

The preemptive right allows existing common stockholders to maintain their proportional ownership in the company by purchasing additional shares before the company offers them to new investors.

Question 9

Abigail and Pamela both have stocks in the Rondante Group. However, if in the future the company goes out of business, Pamela will have a claim on the assets of the company before Abigail. Also, she is given higher priority when the company pays the dividends to all its stockholders. Unlike Abigail, Pamela is a _____.

Accepted Answer

Pamela is a preferred stockholder, which means she has a higher claim on assets and dividends compared to common stockholders like Abigail.

Question 10

An online food delivery service goes out of business owing to stiff competition. The company has long overdue taxes because of which its stockholders do not receive the proceeds of the company after its dissolution. In this case, the company is not able to fulfill the _____ of its stockholders.

Accepted Answer

Stockholders have a right to a residual claim on assets, meaning they are entitled to the remaining assets after all debts and obligations are settled. In this case, overdue taxes prevent this from happening.

Question 11

Andy invests in Orelon Corp., a plastic manufacturing company. As a stockholder, he owns a part of the company and he holds the right to vote on company issues. However, he is entitled to dividends only when the company's board of directors decides to. According to the company policies, if Orelon Corp. faces dissolution in the future, Andy will receive his assets only after the company satisfies the claim of the preferred stockholders. Based on the given information, it can be concluded that Andy is a _____.

Accepted Answer

Andy is a common stockholder because he has voting rights and receives dividends at the discretion of the board, and he is paid after preferred stockholders in case of dissolution.

Question 12

Damien buys stocks worth $2800 in a cosmetic products manufacturing company. His investment turns out to be a sound decision as the prices of his stocks go up by $900. In this scenario, Damien earns a _____.

Accepted Answer

Damien earns a capital gain, which is the profit from the increase in the value of his stocks.

Question 13

Clanston Corp., a steel manufacturing giant, announces its plans to merge with another steel manufacturing company, Tralesta Corp. Peter is a major stockholder in Clanston Corp., and his experience suggests that the merger is not going to be a profitable one. Which of the following basic shareholder rights must Peter use to express his disapproval of the merger?

Accepted Answer

Peter can use his voting rights to express his disapproval of the merger, as shareholders typically have the right to vote on major corporate decisions, including mergers.

Question 14

Jason and Edward held stocks in a cell phone manufacturing company. However, when the company went out of business in a few years and liquidated its assets, Edward rightfully received his share in the company proceeds before Jason. Based on the given information, it can be concluded that Edward was a _____.

Accepted Answer

Preferred stockholders have a higher claim on assets and earnings than common stockholders, which explains why Edward received his share before Jason.

Question 15

Which of the following statements is true of the common stockholders' right to a residual claim on assets?

Accepted Answer

Common stockholders have a residual claim on assets, meaning they are paid after all other obligations, such as taxes, wages, and debts, are settled.

Question 16

Jeremy holds 14.5% shares of stock in an automobile company. As per the company norms, if the company issues new stock, as an existing stockholder, Jeremy can buy 14.5% of the new shares before the stock is offered to the other investors of the company. Which of the following common stockholder rights does this scenario exemplify?

Accepted Answer

This scenario exemplifies a preemptive right, which allows existing shareholders to purchase additional shares before the company offers them to new investors, maintaining their proportional ownership.

Question 17

A(n) _____ is a type of stock that gives its holder priority over common stockholders in terms of dividends and claims on assets.

Accepted Answer

Preferred stock gives its holder priority over common stockholders in terms of dividends and claims on assets, especially in the event of liquidation.

Question 18

Sapphinx Growth and Income, a mutual fund company, had a free hand in its operations before the year 2010. However, after an alteration in the government rules, the company faced a number of restrictions in selling its shares to investors. Which of the following acts is responsible for the alteration in the rules?

Accepted Answer

The Dodd-Frank Act, enacted in 2010, introduced significant regulatory changes to the financial industry, including mutual funds, to increase transparency and reduce risks.

Question 19

Dividends of a company are:

Accepted Answer

Dividends are payments made by a corporation to its shareholders, usually as a distribution of profits.

Question 20

Each year, Arnold receives a stated amount of dividend from the earnings of the company he has stocks in. In a particular period, if the company skips the dividend, then Arnold will receive the accumulated amount, that is, the dividend of that period plus the amount of the dividend the company skipped in the previous period. Based on the information given in the scenario, Arnold is most likely a holder of:

Accepted Answer

Preferred stockholders often receive dividends that accumulate if they are not paid in a given period, a feature known as "cumulative dividends."

Quiz 10: Securities Markets: Trading Financial Resources