Question 1

Which of the following is a non-cash distribution?

Accepted Answer

A stock dividend is a distribution of additional shares of stock to existing shareholders, which does not involve any cash payments. B) A share repurchase involves the company buying back its own shares from shareholders for cash. C) A preemptive right refers to a shareholders' right to purchase additional shares of stock in proportion to their current ownership in the company, which may involve a cash payment. D) A proxy is a legal document allowing one person to act on behalf of another person in a voting process, it is not a distribution.

Question 2

Little,Inc.paid a 20 percent stock dividend.Prior to the dividend,the stock's price was $50 a share.Immediately after the dividend,the price will

Accepted Answer

A 20% stock dividend means for every 5 shares held, an additional share is given. Therefore, the number of shares increases by 20%. If the original price of one share was $50, after the dividend, the value of the shares will remain the same but the number of shares will increase.

Let's assume there were 100 shares to begin with. After the dividend, there will be 120 shares. The total value of the shares will remain the same: $50 x 100 = $5000.

To find the new price per share, divide the total value by the new number of shares:

$5000 ÷ 120 = $41.67 per share.

Therefore, the price per share will decrease to $41.67 after the dividend.

Question 3

An assignment of your shareholder voting rights to someone else is known as a

Accepted Answer

An assignment of shareholder voting rights to someone else is known as a proxy. When a shareholder is unable to vote on a particular matter, they may choose to give their proxy, or authorization, to another person who will vote on their behalf. This allows the shareholder's voice to be heard even if they are unable to attend a meeting or vote in person. Therefore, option A is the correct answer.

Question 4

Inkle,Inc.has $200,000 of 10% bonds outstanding (which pay $20,000 interest)and $100,000 of 12% preferred stock (which pay $12,000 dividends).Assume that Inkle's earnings in the upcoming year will be either $50,000 or $100,000.Given these two possibilities,common stockholders' share of earnings will be either ________ or ________.

Accepted Answer

The common stockholders' share of earnings is calculated by subtracting the interest on bonds and preferred stock dividends from the total earnings. For $50,000 earnings: $50,000 - $20,000 (interest) - $12,000 (dividends) = $18,000. For $100,000 earnings: $100,000 - $20,000 (interest) - $12,000 (dividends) = $68,000.

Question 5

Voting rights are typically held by

Accepted Answer

Common stockholders typically have voting rights in a corporation, which allows them to vote on corporate matters such as the election of the board of directors. Preferred stockholders usually do not have voting rights, and bondholders are creditors of the company and also do not have voting rights.

Question 6

A blue chip stock is best understood as a stock

Accepted Answer

A blue chip stock is generally characterized as a stock that represents a well-established and financially stable company with a history of delivering consistent returns to investors, typically through a combination of dividends and growth. It is not necessarily defined by a high dividend rate, low capitalization, or being a company's preferred stock.

Question 7

Little,Inc.paid a 10 percent stock dividend.Prior to the dividend,the stock's price was $100 a share.Immediately after the dividend,the price will

Accepted Answer

With a 10% stock dividend, the number of shares outstanding will increase by 10%. Therefore, the total value of the company remains the same, but it is spread across more shares. Using the formula (Previous price)/(1+dividend percentage) gives us a post-dividend price of $90.91, which is approximately a 9.09% decrease from the original price of $100.

Question 8

If you are interested in getting a high current yield,you should buy

Accepted Answer

Income stocks typically have a high dividend yield, which can provide a higher current income for investors. Growth stocks may not provide as high of a dividend yield, as they often reinvest their earnings back into the company. Cyclical stocks and special situations may not necessarily have a high dividend yield, as they may be focused on growth or specific events rather than consistent income.

Question 9

BTA,Inc.declared a two-for-one stock split.Assuming you presently own 100 shares means that you

Accepted Answer

In a two-for-one stock split, each share you own is split into two, effectively doubling the number of shares you own. Therefore, if you own 100 shares, you will receive another 100 shares, making your total 200 shares.

Question 10

A residual claim means common stockholders' claims

Accepted Answer

Residual claim refers to the claim of common stockholders on the earnings and assets of a company after all the claims of preferred stockholders and bondholders have been satisfied. Therefore, the common stockholders' claims come after those of preferred stockholders and bondholders.

Question 11

The preemptive right allows shareholders

Accepted Answer

The preemptive right allows shareholders to maintain their proportionate ownership interest in the corporation by giving them the right to purchase newly issued shares before they are offered to the general public. This ensures that the existing shareholders' ownership percentage remains the same and they are not diluted by the issuance of new shares to outsiders. The preemptive right does not allow shareholders to overthrow existing corporate officers, convert shares into bonds or receive a dividend before bondholders.

Question 12

A proxy allows shareholders

Accepted Answer

A proxy allows shareholders to assign their voting rights to others, typically a representative or proxy solicitor, to vote on their behalf during important corporate decisions such as electing a board of directors or approving mergers and acquisitions.

Question 13

Regular cash dividends are typically paid

Accepted Answer

Regular cash dividends are commonly paid on a quarterly basis, meaning four times a year. This allows the company to distribute profits to shareholders in a consistent and predictable manner. While some companies may choose to pay dividends annually or semi-annually, quarterly payouts are the most typical. Monthly dividends, on the other hand, are less common and tend to be reserved for specialized investment vehicles, such as real estate investment trusts (REITs) or certain exchange-traded funds (ETFs).

Question 14

If you believe a company will grow rapidly in the future,you should buy its

Accepted Answer

Common stock is the best choice if you believe a company will grow rapidly in the future because it has the potential to increase in value as the company grows and becomes more successful. As the company's profits increase, its stock price may also rise, giving you a chance to make a profit if you decide to sell your shares. Preferred stocks and bonds generally offer fixed returns, which would not give you the same level of potential upside as common stock if the company performs well. Notes are also generally not a good investment for individuals as they are usually sold to institutional investors.

Question 15

A regular dividend refers to

Accepted Answer

A regular dividend refers to the routine payment of a cash dividend, which is paid out to shareholders on a regular basis, such as quarterly or annually. This is in contrast to a special dividend, which is a one-time payment and not a regular occurrence.

Question 16

Which item below is not a shareholder right?

Accepted Answer

Redemption right refers to the company's right to repurchase its own shares from shareholders. It is not considered as a shareholder's right. A, B, and C are all shareholder rights.

Question 17

Which of the following statements on the voting rights of common stockholders is false?

Accepted Answer

Stockholders do not lose their right to vote simply by failing to exercise it. They may still exercise their voting rights at future meetings. However, if they fail to vote for a prolonged period of time or do not keep their contact information updated with the company, they may be deemed "inactive" and may lose some of their shareholder rights.

Question 18

A dividend payable in stock (a stock dividend)

Accepted Answer

While a stock dividend increases the total number of shares you hold, it does not necessarily increase your net worth. This is because the market value of each share generally decreases following a stock dividend, which offsets the increase in the number of shares you hold. Additionally, stock dividends are typically issued by financially healthy companies as a means of reinvesting profits into the business rather than distributing cash to shareholders. Therefore, choice A is incorrect, and choice B is not necessarily true. Finally, choice D is incorrect because a stock dividend does not involve an exchange of one type of stock for another.

Question 19

A periodic share repurchase plan is a form of

Accepted Answer

A periodic share repurchase plan is a method companies use to buy back their own shares from the marketplace, effectively distributing cash to shareholders in exchange for a portion of the company's outstanding equity. This reduces the number of shares available in the market and can increase the value of remaining shares.

Question 20

A likely example of a growth stock is

Accepted Answer

A growth stock is a stock that is expected to experience a higher-than-average rate of growth in earnings, revenue, or both. Microsoft is a technology company that has experienced significant revenue and earnings growth in recent years due to its dominant position in the software and cloud computing markets. This growth potential makes Microsoft a likely example of a growth stock. General Motors and Meadwestvaco may not fit the definition of a growth stock, as these companies are in the mature industries of automotive manufacturing and paper products, respectively. The U.S. Postal Service is a government entity and does not have publicly traded stock, making it an irrelevant choice.

Quiz 11: Stocks and Bonds: Your Most Common Investments