Equities

Question 1

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

Answer 1

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

Question 2

A company declares a cash dividend that is 8% higher than the previous dividend rate. Prior to the announcement, the annual dividend yield was 6% and the stock was trading at $25 per share. What is the new dividend payment amount per share?

A. $.375
B. $.380
C. $.400
D. $.405

Answer 2

The best answer is D.
This question is more annoying than hard! The current annual dividend yield is 6% x $25 current share price = $1.50 per year. The dividend is now increasing by 8%, so the new annual dividend rate will be 1.08 x $1.50 = $1.62. Since common dividends are paid quarterly, the quarterly dividend will be $1.62 / 4 = $.405