71. Which of the following is false?
(a) The common stock of a corporation can be either privately or publicly owned.
(b) Firms often issue common stock with no par value.
(c) Preemptive rights often result in a dilution of ownership.
(d) A firm’s corporate charter indicates how many authorized shares it can issue.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Common Stock
72. Which of the following is false?
(a) The common stock of a corporation can only be publicly owned.
(b) Firms often issue common stock with no par value.
(c) Preemptive rights help to prevent a dilution of ownership on the part of existing
shareholders.
(d) A firm’s corporate charter indicates how many authorized shares it can issue.
Answer: A
Level of Difficulty: 2
Learning Goal: 2
Topic: Features of Common Stock
73. A proxy statement is
(a) a statement giving the votes of a stockholder to the CEO.
(b) a statement giving the votes of a stockholder to the board of directors.
(c) a statement giving the votes of a stockholder to another party.
(d) none of the above.
Answer: C
Level of Difficulty: 2
Learning Goal: 2
Topic: Common Stock Voting
74. An ADR is
(a) a claim issued by a U.S. bank representing ownership of shares of a foreign
company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.
investors.
(b) a claim issued by a foreign bank representing ownership of shares of a foreign
company’s stock held on deposit by the foreign bank and is issued in dollars to
U.S. investors.
(c) a claim issued by a U.S. bank representing ownership of shares of a U.S.
company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.
investors.
(d) none of the above.
Answer: A
Level of Difficulty: 4
Learning Goal: 2
Topic: American Depositary Receipt
75. Preferred stockholders
(a) do not have preference over common stockholders in the case of liquidation.
(b) do have preference over bondholders in the case of liquidation.
(c) do not have preference over bondholders in the case of liquidation.
(d) Two of the above are true statements.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Preferred Stockholder Rights
76. Which of the following is usually a right of a preferred stockholder?
(a) Right to convert shares to common stock on demand.
(b) Preemptive right to participate in the issuance of new common shares.
(c) Right to receive dividend payments before any dividends are paid to common
stockholders.
(d) Right to sue company in bankruptcy proceedings if promised preferred dividends
are not paid.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Preferred Stockholder Rights
77. Which of the following is not typically a feature of preferred stock?
(a) Most preferred stock is noncumulative.
(b) Most preferred stock is cumulative.
(c) Preferred stock is generally callable.
(d) Preferred stock is typically convertible.
Answer: A
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
78. Which of the following is not typically a feature of common stock?
(a) Most common stock is callable.
(b) Most common stock is cumulative.
(c) Common stock may or may not pay dividends.
(d) More than one of the above statements is not true of common stock.
Answer: D
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
79. A group formed by an investment banker to share the financial risk associated with
underwriting new securities is a(n)
(a) underwriting syndicate.
(b) selling group.
(c) investment banking consortium.
(d) broker pool.
Answer: A
Level of Difficulty: 2
Learning Goal: 3
Topic: Issuing Securities
80. You are planning to purchase the stock of Ted’s Sheds Inc. and you expect it to pay a
dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the
stock for $100 in 3 years. If your required return for purchasing the stock is 12 percent,
how much would you pay for the stock today?
(a) $75.45
(b) $77.24
(c) $81.52
(d) $85.66
Answer: C
Level of Difficulty: 3
Learning Goal: 4
Topic: Basic Valuation Model (Equation 7.2)
(a) The common stock of a corporation can be either privately or publicly owned.
(b) Firms often issue common stock with no par value.
(c) Preemptive rights often result in a dilution of ownership.
(d) A firm’s corporate charter indicates how many authorized shares it can issue.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Common Stock
72. Which of the following is false?
(a) The common stock of a corporation can only be publicly owned.
(b) Firms often issue common stock with no par value.
(c) Preemptive rights help to prevent a dilution of ownership on the part of existing
shareholders.
(d) A firm’s corporate charter indicates how many authorized shares it can issue.
Answer: A
Level of Difficulty: 2
Learning Goal: 2
Topic: Features of Common Stock
73. A proxy statement is
(a) a statement giving the votes of a stockholder to the CEO.
(b) a statement giving the votes of a stockholder to the board of directors.
(c) a statement giving the votes of a stockholder to another party.
(d) none of the above.
Answer: C
Level of Difficulty: 2
Learning Goal: 2
Topic: Common Stock Voting
74. An ADR is
(a) a claim issued by a U.S. bank representing ownership of shares of a foreign
company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.
investors.
(b) a claim issued by a foreign bank representing ownership of shares of a foreign
company’s stock held on deposit by the foreign bank and is issued in dollars to
U.S. investors.
(c) a claim issued by a U.S. bank representing ownership of shares of a U.S.
company’s stock held on deposit by the U.S. bank and is issued in dollars to U.S.
investors.
(d) none of the above.
Answer: A
Level of Difficulty: 4
Learning Goal: 2
Topic: American Depositary Receipt
75. Preferred stockholders
(a) do not have preference over common stockholders in the case of liquidation.
(b) do have preference over bondholders in the case of liquidation.
(c) do not have preference over bondholders in the case of liquidation.
(d) Two of the above are true statements.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Preferred Stockholder Rights
76. Which of the following is usually a right of a preferred stockholder?
(a) Right to convert shares to common stock on demand.
(b) Preemptive right to participate in the issuance of new common shares.
(c) Right to receive dividend payments before any dividends are paid to common
stockholders.
(d) Right to sue company in bankruptcy proceedings if promised preferred dividends
are not paid.
Answer: C
Level of Difficulty: 3
Learning Goal: 2
Topic: Preferred Stockholder Rights
77. Which of the following is not typically a feature of preferred stock?
(a) Most preferred stock is noncumulative.
(b) Most preferred stock is cumulative.
(c) Preferred stock is generally callable.
(d) Preferred stock is typically convertible.
Answer: A
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
78. Which of the following is not typically a feature of common stock?
(a) Most common stock is callable.
(b) Most common stock is cumulative.
(c) Common stock may or may not pay dividends.
(d) More than one of the above statements is not true of common stock.
Answer: D
Level of Difficulty: 3
Learning Goal: 2
Topic: Features of Preferred Stock
79. A group formed by an investment banker to share the financial risk associated with
underwriting new securities is a(n)
(a) underwriting syndicate.
(b) selling group.
(c) investment banking consortium.
(d) broker pool.
Answer: A
Level of Difficulty: 2
Learning Goal: 3
Topic: Issuing Securities
80. You are planning to purchase the stock of Ted’s Sheds Inc. and you expect it to pay a
dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the
stock for $100 in 3 years. If your required return for purchasing the stock is 12 percent,
how much would you pay for the stock today?
(a) $75.45
(b) $77.24
(c) $81.52
(d) $85.66
Answer: C
Level of Difficulty: 3
Learning Goal: 4
Topic: Basic Valuation Model (Equation 7.2)
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