Common Stock

Question 1

Which term applies to common stock?

a) convertible
b) redeemable
c) non-negotiable
d) non-callable

Answer 1

d) non-callable

Question 2

Which terms describe common stock?
A) Negotiable and callable
B) Negotiable and non-callable
C) Non-negotiable and callable
D) Non-negotiable and non-callable

Answer 2

B) negotiable and non-callable

Question 3

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

Answer 3

A) negotiable

Question 4

The market price of common stock will be influenced by which of the following?
A) The par value of the shares
B) Expectations for future earnings growth
C) Date of incorporation for the issuer
D) Book value of the company

Answer 4

B) expectations for future earnings growth

Question 5

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

Answer 5

D) number of authorized shares will be reduced

Question 6

If a company repurchases its own common shares, the number of:
A) outstanding shares will decrease
B) outstanding shares will increase
C) issued shares will decrease
D) unissued shares will increase

Answer 6

A) outstanding shares will decrease

Question 7

If a company declares and pays a 10% stock dividend, an existing shareholder with 100 shares will have:
A) more than 100 shares at an increased price per share
B) less than 100 shares at an increased price per share
C) more than 100 shares at a reduced price per share
D) less than 100 shares at a reduced price per share

Answer 7

C) more than 100 shares at a reduced price per share

Question 8

A client owns 100 shares of COSMO Company common stock. The client receives a notice that COSMO has declared a 10% stock dividend. What does this mean?

Answer 8

the client will receive 10 additional shares of COSMO stock

Question 9

Dawn owns 100 shares of ACME Company common stock, currently trading at $60 per share. She receives a notice that ACME has declared a 20% stock dividend. What does this mean to Dawn?

Answer 9

Dawn will receive 20 additional shares of stock

Question 10

When a corporation declares a reverse stock split, the:
A) number of outstanding shares increases and the market price per share increases
B) number of outstanding shares decreases and the market price per share increases
C) number of outstanding shares increases and the market price per share decreases
D) number of outstanding shares decreases and the market price per share decreases

Answer 10

B) number of outstanding shares decreases and the market price per share increases

Question 11

A proxy given to a caretaker to vote a stockholder’s shares is a:

Answer 11

power of attorney

Question 12

An investor who wishes to vote at a company’s annual meeting:

Answer 12

can vote by proxy

Question 13

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 2:1 stock split
D) ABC declares a 1 for 4 reverse split

Answer 13

B) ABC declares that it will call its convertible preferred stock, which is currently trading at a premium

Question 14

All of the following actions by a corporation will affect an individual common shareholder’s equity EXCEPT:
A) Issuance of additional common shares
B) Conversion of convertible preferred stock
C) Repurchase of common shares
D) Declaration of a stock dividend or stock split

Answer 14

D) declaration of a stock dividend or stock split

Question 15

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 2:1 stock split
D) ABC declares a 1 for 4 reverse split

Answer 15

B) ABC declares that it will call its convertible preferred stock, which is currently trading at a premium

Question 16

A customer buys 100 shares of XYZ stock at $40. The stock pays a quarterly dividend of $.50. What is the dividend yield?

Answer 16

5%

Question 17

PDQ Company $1 par common stock currently trading at $34. PDQ is currently paying a quarterly common dividend of $.75 per share. The current yield of PDQ stock is:

Answer 17

8.8%

Question 18

PDQ Company $1 par common stock currently trading at $55. PDQ is currently paying a quarterly common dividend of $1.10 per share. The current yield of PDQ stock is:

Answer 18

8%

Question 19

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 $15, what is the earnings per share?

Answer 19

$1

Question 20

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

Answer 20

B) Investor expectations about the future of the company

Question 21

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

Answer 21

D) Par Value

Question 22

The definition of Treasury Stock is:

Answer 22

issued stock minus outstanding stock

Question 23

Which statement is TRUE regarding the effect of a repurchase of Treasury Stock?
A) Outstanding shares are reduced and Earnings Per Share are reduced
B) Outstanding shares are reduced and Earnings Per Share are increased
C) Outstanding shares are increased and Earnings Per Share are reduced
D) Outstanding shares are increased and Earnings Per Share are increased

Answer 23

B) Outstanding shares are reduced and Earnings Per Share are increased

Question 24

A corporation has issued 50,000,000 shares of common stock at $2 par. The corporation has 10,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is:

Answer 24

$80,000,000

Question 25

Common dividends are usually declared:

Answer 25

quarterly by the Board of Directors of the company

Question 26

All of the following are methods of dividend payment EXCEPT:
A) cash
B) stock
C) rights
D) product

Answer 26

C) rights

Question 27

X Corporation stock has been trading at $1,200 per share recently and trading volume has fallen to record lows. To increase trading volume, the X Corporation may:

Answer 27

split the stock three-for-one to make its price more attractive

Question 28

X Corporation stock has been trading at $1 per share recently and the exchange where the stock trades will delist the stock if the price “breaks the buck.” The company would like the share price to be around $10, which is comparable to other companies in its industry. To increase the price of the stock, the company can:

Answer 28

declare a 1:10 reverse split to reduce the number of shares outstanding

Question 29

A customer gives a power of attorney to a caretaker to vote his shares on his behalf at the company’s annual meeting. Which statement is TRUE?
A) This is known as a proxy and once given, it cannot be revoked
B) This is known as a proxy which may be revoked prior to the annual meeting
C) This is known as a voting trust and once given, it cannot be revoked
D) This is known as a voting trust which may be revoked prior to the annual meeting

Answer 29

B) This is known as a proxy which may be revoked prior to the annual meeting

Question 30

Shareholder approval would be needed if a corporation wishes to:
A) pay a cash dividend
B) split its stock 2 for 1
C) repurchase shares for its Treasury
D) issue non-convertible securities

Answer 30

B) split its stock 2 for 1

Question 31

Which statement is correct concerning cumulative voting?
A) It allows for a proportionate voting weight and helps smaller investors
B) It allows for a proportionate voting weight and helps larger investors
C) It allows for a disproportionate voting weight and helps smaller investors
D) It allows for a disproportionate voting weight and helps larger investors

Answer 31

C) It allows for a disproportionate voting weight and helps smaller investors

Question 32

In a corporate liquidation, the last to get paid is:

Answer 32

Common stockholders

Question 33

All of the following are rights of a common shareholder EXCEPT the:
A) right to vote
B) right to receive a dividend
C) right to manage
D) right to transfer shares

Answer 33

C) right to manage

Question 34

To determine if a stock appears to be overpriced, what would be examined?

Answer 34

The company’s Price to Earnings Ratio

Question 35

ABC Corp. has a market price of $15 and a Price/Earnings multiple of 10. What was the corporation’s Earnings Per Common Share?

Answer 35

$1.50