Chapter 10/11

Question 1

Common Stock

Answer 1

Security representing ownership in a corporation

Owners have final claim on firms assets and earnings

Question 2

Board of Directors

Answer 2

Body elected by and responsible to stockholders to set policy and hire management

Question 3

Cumulative Voting

Answer 3

Voting system that encourages minority representation by permitting stockholders to cast all their votes for one candidate

Question 4

Preemptive Rights

Answer 4

Right of current stockholders to maintain their proportionate ownership in the firm

Question 5

Rights Offering

Answer 5

Sale of new securities to stockholders by offering them the option to purchase shares

Question 6

Cash Dividends

Answer 6

Distribution form earnings paid in the form of cash

Question 7

Payout Ratio

Answer 7

Cash dividends/earnings

Question 8

Ex Dividend

Answer 8

Stock purchases exclusive of any dividend payment

Question 9

Stock Dividend

Answer 9

Distribution from earnings paid in additional shares of stock

Question 10

Dividend Reinvestment Plans (DRIP’s)

Answer 10

Plans that permit stockholders to have cash dividends reinvested in additional shares instead of receiving cash

Question 11

Standard Deviation

Answer 11

Measure of dispersion around an average value

A measure of risk`

Question 12

Beta

Answer 12

Index of systematic risk

Measure of the volatility of a stock’s return relative to the market return

Question 13

CAPM

Answer 13

Capital Asset Pricing Model
Shows the relationship between risk and return
Risk adjusted required return on a stock