Chapter 14 Flashcards
Why do corporations issue common stock? (5)
to raise money for startup costs/expansion/business activities; don’t have to repay money a stockholder pays for stock; investors can sell shares to another investor; dividends not mandatory but corporations distribute 30-70% of earnings to stockholders; common stockholders have voting rights
Define private corporation.
stock held by a few people and not traded openly on stock markets
Define public corporation.
stock held widely and traded openly on stock markets
Corporations must accommodate stockholders by (4)
holding annual meetings; allowing stockholders to elect a board of directors and approve major policy changes; allowing for pre-emptive rights; distributing quarterly and annual reports
Investors can make money in what two ways?
income from dividends in the form of cash or additional stock; dollar appreciation of stock value
What happens when a corporation splits its stock? (3)
shares owned by existing stockholders are increased into a larger number of shares; price per share is reduced by proportionate amount; total value unchanged
The ex-dividend date is set
two business days before the record date
What is the record date?
cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution
What is the payable date?
date that any declared stock dividends are due to be paid out
Give four examples of the dates for common shareholders.
May 14 (eligible for dividend); May 17 (ex-dividend date); May 19 (record date); June 10 (payable date)
What is the ex-dividend date?
the day the stock starts trading without the value of its next dividend payment
What is preferred stock?
a “middle” investment representing a “callable”
ownership position between common stock and
corporate bonds
What is the biggest difference between common and preferred stock?
preferred stockholders receives cash dividends before common stockholders are paid any cash dividends
Why would an investor choose preferred stock over common stock?
preferred stock is a more predictable source of income because you own the stock and know the rate of return
Which stock has higher dividends, common stock or preferred stock?
preferred stock
Describe cumulative preferred stock.
Unpaid cash dividends accumulate and must be paid before cash dividends are paid to the common stockholders
Describe convertible preferred stock.
Can be traded for shares of common stock in the same company
If a company goes bankrupt, what is the order of payments?
taxing authorities at all levels; secured creditors; unsecured bond holders; preferred stock holders; common stock holders
Give two examples of blue-chip stock.
AT&T; Coke
Give two examples of cyclical stock.
GM, Whirlpool
Give two examples of defensive stock.
P&G; Kimberly Clark
Give two examples of growth stock.
Target; Netflix
Give two examples of income stock.
McDonald’s; IBM
Give two examples of large cap stock.
Apple; Dow Chemical
