5.1 Common Stock

ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's: A) current yield per share has decreased. B) current yield per share has been unaffected. C) yield to maturity has gone up. D) current yield per share has increased.

*D) current yield per share has increased. The current yield would have increased because current yield is the income (dividend) divided by price. A higher dividend divided by the same price results in a higher yield. Stocks do not have a yield to maturity.

Common stockholders of a publicly traded corporation have which of the following rights and privileges? Residual claim to assets at dissolution. Right to a vote for stock dividends to be paid. Right to receive an audited financial report on an annual basis. Claim against dividends in default. A) I and III. B) I and IV. C) II and III. D) II and IV.

A) I and III. - I. Residual claim to assets at dissolution. III. Right to receive an audited financial report on an annual basis. *Common stockholders of publicly traded companies have a residual claim to assets of a corporation at dissolution and are entitled to receive an annual report containing audited financial statements. **Stockholders NEVER get to vote on dividends.

GHI stock is at $10 par value and is selling in the market for $60 per share. If the current quarterly dividend is $1, the current yield is: A) 10%. B) 6.7%. C) 1%. D) 1.7%.

B) 6.7%. *Current yield is determined by dividing the annual dividend of $4 ($1 per quarter × 4 = $4) by the current stock price of $60 ($4 ÷ $60 = 6.7%).

If ABC common stock closed at 20 yesterday and ABC is currently paying a quarterly dividend of $.40, what is the stock's current yield? A) Less than 1%. B) Between 1% and 5%. C) More than 10%. D) Between 5% and 10%.

D) Between 5% and 10%. The annual dividend is $1.60 (4 × $0.40). The current yield is the dividend of $1.60, divided by the current price ($20). Thus, the yield of 8% is more than 5% (1/20) and less than 10% (2/20). CY= Annual Dividend / Current Price

If a company's dividend increases by 5% but its market price remains the same, the current yield of the stock will: A) decrease. B) remain at 5%. C) remain at 7%. D) increase.

D) increase. *The current yield of a stock is the annual dividend divided by the market price. If a company's dividend increases and its market price remains the same, its current yield will increase.

Common stockholders may take advantage of which of the following features of their security? The right to vote. The potential appreciation of stock value. Tax-free income. Guaranteed payment of dividends A) I and II. B) I and III. C) II and IV. D) III and IV.

A) I and II. The right to vote. The potential appreciation of stock value. *Common stockholders are the owners of the corporation, and, as owners, they may vote their shares and potentially enjoy appreciation of the value of their stock. They are not entitled to tax-free income or guaranteed payment of dividends.

A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter, but the dividend has remained the same, it may be concluded that: A) current dividend yield has increased. B) current dividend yield has decreased. C) current dividend yield has remained the same. D) dividend yield to maturity has decreased.

A) current dividend yield has increased. *Current dividend yield is income dividend divided by price. If the price of a stock decreases and the dividend remains the same, dividend yield will increase.

Which of the following statements accurately describes the doctrine of limited liability? A) A partner is not personally liable for the debts of the partnership. B) The owner of a sole proprietorship is not personally liable for the proprietorship's debts. C) A shareholder of a corporation is not personally liable for the corporation's debts. D) A shareholder of a corporation has some personal liability for the corporation's debts.

C) A shareholder of a corporation is not personally liable for the corporation's debts. *The owners of certain kinds of businesses such as sole proprietorships and partnerships have unlimited liability for the business' debts. The doctrine of limited liability means, however, that the owners of a corporation (the shareholders) are not personally liable for the corporation's debts.

The residual right of common stockholders refers to their right to: A) examine the corporation's annual reports and other reports, and take legal action if irregularities are found. B) receive all announced dividends in accordance with the number of shares held. C) claim company assets in bankruptcy after wages, taxes, creditors and preferred shareholders have been paid. D) vote in elections for the board of directors and in other important business decisions, such as changes to the charter.

C) claim company assets in bankruptcy after wages, taxes, creditors and preferred shareholders have been paid. *The residual right of common shareholders refers to their position in the event of bankruptcy.