Chapter 8

Question 1

A hybrid security with characteristics of both common stock and bonds

Answer 1

Preferred Stock

Question 2

A requirement that all past, unpaid preferred stock dividends be paid before any common stock dividends are declared

Answer 2

Cumulative Feature

Question 3

Provisions that allow for multiple protections of a preferred stock owners investment

Answer 3

Protective Provision

Question 4

Preferred shares that can be changed into a predetermined number of shares of common stock, if investors so choose

Answer 4

Convertible Preferred Stock

Question 5

A provision that entitles the corporation to repurchase its preferred stock from investors at stated prices over specified periods

Answer 5

Call Provision

Question 6

A protective provision that requires the firm periodically to set aside an amount of money for the retirement of its preferred stock, the money is then used to purchase preferred stock in the open market or through the use of a call provision

Answer 6

Sinking-fund Provision

Question 7

A protective provision whereby the investor is not liable for more than the amount they have invested in the firm

Answer 7

Limited Liability

Question 8

A means of voting where a designated party is provided with temporary power of attorney to vote for the signed at the corporation’s annual meeting

Answer 8

Proxy

Question 9

A battle between rival groups for proxy votes in order to control the decisions made in a stockholders’ meeting

Answer 9

Proxy Fight

Question 10

Voting where each share of stock allows the shareholder one vote and each position on the board of directors is voted on separately

Answer 10

Majority Voting

Question 11

Voting where each share of stock allows the shareholder a number of votes equal to the number of directors being elected

Answer 11

Cumulative Voting

Question 12

The right entitling the common shareholder to maintain their proportionate share of ownership in the firm

Answer 12

Preemptive Right

Question 13

A certificate issued to common stockholders giving them an option to purchase a stated number of shares at a price during a period

Answer 13

Right

Question 14

A firm’s growth rate resulting from reinvesting the company’s profits rather than distributing them as dividends

Answer 14

Internal Growth

Question 15

The company’s percentage of profits retained

Answer 15

Profit-Retention Rate

Question 16

Dividends as a percentage of earnings

Answer 16

Dividend-Payout Ratio

Question 17

The rate of return investors expect to receive on an investment by paying the current market price of the security

Answer 17

Expected Rate of Return