Common Stock Review Questions

An investor who wishes to vote at a company's annual meeting: A: must physically attend the meeting B: can vote by proxy C: can vote by assignment D: can vote by appointment

B: can vote by proxy

An investor has 300 shares and is voting for 3 open board seats. Which statement is correct if the election employs the cumulative voting method? A: Cumulative voting gives the shareholder a disproportionate voting weight and allows her to cast a maximum of 900 votes for a favored director. B: Cumulative voting gives the shareholder a disproportionate voting weight and allows her to cast a maximum of 300 votes for a favored director. C: Cumulative voting gives the shareholder a proportionate voting weight and allows her to cast a maximum of 900 votes for a favored director. D: Cumulative voting gives the shareholder a proportionate voting weight and allows her to cast a maximum of 300 votes for a favored director.

A: Cumulative voting gives the shareholder a disproportionate voting weight and allows her to cast a maximum of 900 votes for a favored director. -cumulative voting is favorable for small shareholders

Which term describes common stock? A: negotiable B: redeemable C: non-negotiable D: callable

A: Negotiable

A customer owns 1,000 common shares of ABC Corporation. Which of the following actions will dilute the shareholders' equity? A: ABC declares a 10%stock dividend B: ABC declares that it will call its convertible preferred stock, which is currently trading at a premium C: ABC declares a 2:1stock split D: ABC declares a 1 for 4 reverse split

B: ABC declares that it will call its convertible preferred stock, which is currently trading at a premium stock split: shareholders receive more shares worth less reverse stock split: shareholders have less stock worth more both splits does not change equity

Which of the following influences the market price of common stock? A: The par value of the shares B: Investor expectations about the future of the company C: Stated value of the shares D: Book value of the shares

B: Investor expectations about the future of the company

Corporate dividend payments may be made in all of the following forms EXCEPT: A: Cash or company products B: Listed options of that company C: Additional common shares of another company D: Additional common shares of that company

B: Listed options of that company

Which statement is FALSE regarding Treasury Stock? A: Treasury Stock is not entitled to dividends B: Treasury Stock has voting rights C: Treasury Stock buy backs decreases the number of shares outstanding D: Treasury Stock purchases are used to increase reported Earnings Per Share

B: Treasury Stock has voting rights

In a corporate liquidation, common stockholders are paid: A: before bondholders and preferred stockholders B: after bondholders and preferred stockholders C: after bondholders but before preferred stockholders D: before all creditors

B: after bondholders and preferred stockholders

The definition of Treasury stock is: A: authorized shares minus issued shares B: issued shares minus outstanding shares C: authorized shares minus outstanding shares D: capital in excess of par value minus par value

B: issued shares minus outstanding shares -The best answer is B. If a company has the same number of issued shares as the number of shares outstanding, then no shares have been repurchased for the company's Treasury. However, if the company repurchases shares, the number of outstanding shares decreases. Thus, the definition of Treasury stock is issued shares minus outstanding shares.

Common dividends are usually paid: A: monthly B: quarterly C: semi-annually D: annually

B: quarterly

Voting of the common stockholder is required for all of the following EXCEPT: A: when a corporation declares a stock split B: when a corporation declares a stock dividend C: when a corporation wishes to issue convertible securities D: deciding whether to accept a tender offer for the company's share

B: when a corporation declares a stock dividend -dividends decided by Board of Directors

A company's common stock is selling in the market at a "multiple of 15". If the market price of the common stock is currently $10, what is the earnings per share? A: $.15 B: $.16 C: $.67 D: $1.50

C: $.67 When a stock is selling at a "multiple" of 15, this means that the market price is 15 times the current earnings per share. Since the market price is at $10 and the P/E ratio is 15, earnings per share is $.67.

A corporation has issued 100,000,000 shares of common stock at $1 par. The corporation has 25,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is: A: $12,500,000 B: $25,000,000 C: $75,000,000 D: $100,000,000

C: $75,000,000

PDQ Company $10 par common stock is currently trading at $40. PDQ is currently paying a quarterly common dividend of $.90 per share. The current yield of PDQ stock is: A: 2.25% B: 4% C: 9% D: 10%

C: 9% current yield = annual income/market price 3.60/40 = 9%

A customer gives a power of attorney to a caretaker to vote his shares on his behalf at the company's annual meeting. This is called (a): A: discretionary authority B: voting trust C: proxy D: trading authorization

C: Proxy

To determine if a stock appears to be overpriced, what would be examined? A: The company's Earnings Per Share B: The company's Dividend Payout Ratio C: The company's Price to Earnings Ratio D: The company's Debt to Equity Ratio

C: The company's Price to Earnings Ratio The P/E ratio of a company is a valuation measure. Companies with high P/E ratios as compared to peer companies might be overvalued; while companies with low P/E ratios as compared to peer companies might be undervalued.

Which of the following actions by a corporation would be prohibited? A: Making a cash distribution to shareholders B: Making a stock distribution to shareholders C: Distributing the stock of another company to shareholders D: Distributing tax credits to shareholders

D: Distributing tax credits to shareholders

The common stockholder has all of the following rights EXCEPT: A: Voting rights B: Pre-emptive rights C: Dividend rights D: Management rights

D: Management Rights

What term would apply to Authorized Stock? A: Issued B: Outstanding C: Voting D: Par Value

D: Par Value

What term would apply to Issued Stock? A: Retired B: Outstanding C: Non-voting D: Par Value

D: Par Value

What term would apply to Treasury Stock? A: Negotiable B: Outstanding C: Voting D: Par Value

D: Par Value

Voting of the common stockholder is NOT required for which of the following? A: When a corporation wishes to issue convertible securities B: When a shareholder decides to accept a tender offer for the company's shares C: When a corporation declares a stock split D: When a corporation declares a cash dividend

D: When a corporation declares a cash dividend

All of the following statements are true regarding the effect of the purchase of Treasury Stock EXCEPT: A: the number of outstanding shares is reduced B: the earnings per share is increased C: the market price of the stock will increase D: the number of authorized shares will be reduced

D: the number of authorized shares will be reduced