CHAPTER 7

Question 1

Common stock

Answer 1

Common stock is a security that represents ownership in a corporation.
holders of common stock elect the board of directors and vote on corporate policies.
this form of equity ownership typically yields higher rates of return long term.

Question 2

Common stock v preferred stock

Answer 2

Preferred stock gives no voting rights to shareholders while common stock does.

Question 3

Characteristics of common share

Answer 3

• residual form of ownership
• permanent form of long-term financing
• shareholders elect the board of directors

Question 4

Dividend

Answer 4

a dividend is a distribution of earnings, often quarterly by a company to its shareholders in the form of cash or stock investments.

Question 5

Dividend Rights

Answer 5

Share equally on a per share basis in any distribution of company earnings in the form of dividends

Question 6

Asset Rights

Answer 6

In a liquidation, have the right to assets that remain after obligations to govt taxes, employees and debt holders have been met.

Question 7

Pre-emptive rights

Answer 7

May have the right to share proportionately in any new shares sold based on proportion of shares currently held.

Question 8

Voting rights

Answer 8

have the right to vote on shareholder matters. e.g. the selection of the board of directors.

Question 9

Share split

Answer 9

a decision by the company board of directors to increase the number of shares outstanding by issuing more shares to current shareholders.