Chapter 6 Common Stocks

What is the role of residual owners in a firm?

• They are entitled to fixed interest payments.

• They are entitled to dividend income and a prorated share of the firm's earnings after all other obligations have been met.

• They manage the day-to-day operations of the firm.

• They are responsible for paying off the firm's debts.

Which of the following is a characteristic of classified common stock?

• It is issued in a single class with uniform privileges.

• It is issued in different classes, each offering different privileges and benefits.

• It is only available to institutional investors.

• It is not traded on public exchanges.

What is a stock split?

• A reduction in the number of shares outstanding.

• An increase in the number of shares outstanding by exchanging a specified number of new shares for each outstanding share.

• A type of dividend paid in cash.

• A method of repurchasing shares by the issuing firm.

What does the term "treasury stock" refer to?

• Shares of stock that have been sold and subsequently repurchased by the issuing firm.

• Shares of stock that are issued for the first time in an IPO.

• Shares of stock that are held by the government.

• Shares of stock that are issued to employees as part of a compensation plan.

Which of the following is NOT a type of stock value?

• Par Value

• Book Value

• Market Value

• Dividend Value

What is a Global Depository Receipt (GDR)?

• A receipt for a domestic stock traded in the local market.

• A receipt representing a Euro Stock in a foreign market, which can be sponsored or unsponsored.

• A receipt for a stock that is cross-listed on multiple exchanges.

• A receipt for a stock that is only traded in the United States.

What is the dividend payout ratio?

• The portion of earnings per share (EPS) that a firm pays out as dividends.

• The total amount of dividends paid by a firm in a year.

• The ratio of cash dividends to stock dividends.

• The percentage increase in dividends over the previous year.

Which type of stock is known for having a long and stable record of earnings and dividends?

• Cyclical Stocks

• Growth Stocks

• Blue-chip Stocks

• Speculative Stocks

What is the primary appeal of common stocks to investors?

• They offer guaranteed returns.

• They provide attractive return opportunities through current income and capital gains.

• They are risk-free investments.

• They are only suitable for short-term trading.

How are stock returns typically composed?

• Only through dividends.

• Only through capital gains.

• Through both dividends and capital gains.

• Through interest payments.