76. How is the dirty price of a bond calculated?

Clean (quoted) price + Accrued interest

28. What is a key characteristic of straight voting?

Each shareholder can cast votes equal to the shares they own per candidate

38. What does the residual claim feature of common stock imply?

Common stockholders receive assets only after all senior claims are paid

39. Why is common stock considered riskier than bonds?

Because common stockholders have lower priority in liquidation

44. How is a stock split similar to cutting a cake?

You end up with more pieces, but the total amount remains the same

29. If 5 directors are for election, how many shares does a shareholder need to guarantee a seat by cumulative voting?

1 / (5+1) percent of total shares plus 1 share

1. What does a stock represent?

A certificate of share-ownership in a Joint Stock Company

45. What is one of the main benefits of a stock split?

It increases liquidity and trading volume

67. What are penny stocks?

Common shares of small companies traded for less than one dollar per share

26. How does cumulative voting benefit minority shareholders?

It enables them to concentrate their votes on fewer candidates

40. What does limited liability mean for common stockholders?

Their losses are limited to the original amount of their investment

59. What is the purpose of a sinking fund in relation to preferred stock?

To manage early redemption by making payments to a trustee

62. Why do investors buy value stocks?

Investors hope that the stock’s price will rebound

68. Which of the following is NOT a reason companies issue stocks?

To decrease the company’s market value

42. How does liability differ between corporations and sole proprietorships/partnerships?

Corporations limited liability, while partnerships have unlimited liability

11. Which of the following is a key difference between common stocks and preferred stocks?

Preferred stockholders receive dividends before common stockholders

47. In a two-for-one stock split, what happens to a single $100 share?

It turns into two shares, each worth $50

46. Why do companies conduct stock splits?

To make shares more affordable for a broader range of investors

23. According to the effect of reinvestment of earnings, how does it impact the return components?

Dividend component decreases, and capital gains component increases

53. What is a key feature of preferred stock compared to common stock?

Preferred stockholders receive dividends before common stockholders

6. What does a balance sheet report?

A company’s assets, liabilities, and shareholder equity

72. What is the key characteristic of a zero-coupon bond?

It does not pay interest but trades at a discount

12. What does the par value of a share represent?

The minimum legal price at which a company can issue its shares

36. Which of the following statements about the NYSE's policy on classes of stock is correct?

NYSE generally does not allow multiple classes of stock but with exceptions

5. What must an LLC do to be listed on the stock exchange?

Reorganize into a Joint Stock Company (JSC)

74. What does the face value (par value) of a bond represent?

The money amount the bond will be worth at maturity

65. What is the definition of a unicorn company?

A startup company with a value of over $1 billion

33. What is the purpose of proxy voting?

To allow shareholders to delegate their voting rights to another individual

61. Which of the following is an example of an income stock?

A well-established utility company

27. In cumulative voting, how is the total number of votes for a shareholder calculated?

Number of shares owned × Number of directors to be elected

43. What happens during a stock split?

The number of shares increases, but the total value remains the same

60. What is a key characteristic of growth stocks?

They have earnings growing at a faster rate than the market average

75. What does accrued interest in bond markets refer to?

Interest that accumulates between coupon payment dates

37. In Alphabet's stock structure, what distinguishes Class B shares?

They are held by company insiders and carry 10 votes per share

57. When can preferred stockholders be granted voting rights?

If preferred dividends are not paid for some time

35. Why do companies create different classes of stock?

To maintain control of the firm by giving insiders more voting power

31. Why does a staggered election make takeover attempts more difficult?

It makes it harder to gain control of a majority of the board quickly

3. How does stock issuance affect a company’s balance sheet?

It credits shareholders’ equity (paid-in capital)

34. What is a proxy fight?

An attempt to replace management by via proxy voting

14. Which of the following statements is true about the priority of stockholders in the event of bankruptcy?

Preferred stockholders get paid before common stockholders

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Qs for Feb. 12&14

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Questions 76

Answers

1
76. How is the dirty price of a bond calculated?
Coupon rate × Maturity date
Issue price × Market interest rate
Face value × Coupon rate
Clean (quoted) price + Accrued interest
2
28. What is a key characteristic of straight voting?
Shareholders can distribute their votes among multiple candidates
It is only used in private corporations
Each shareholder can cast votes equal to the shares they own per candidate
It allows minority shareholders to have more influence
3
38. What does the residual claim feature of common stock imply?
Common stockholders have the highest priority in liquidation
Common stockholders receive assets only after all senior claims are paid
Common stockholders are guaranteed a fixed return on investment
Common stockholders do not receive any assets in liquidation
4
39. Why is common stock considered riskier than bonds?
Because common stockholders can be forced to repay the firm’s debts
Because common stockholders receive fixed dividends
Because common stockholders have lower priority in liquidation
Because bondholders are required to share their returns with stockholders
5
44. How is a stock split similar to cutting a cake?
The total size of the cake increases
You end up with more pieces, but the total amount remains the same
The cake is divided among fewer people
Each piece of cake becomes larger
6
29. If 5 directors are for election, how many shares does a shareholder need to guarantee a seat by cumulative voting?
50% of total shares
1 / (5+1) percent of total shares plus 1 share
1 / 5 percent of total shares
1 / (5-1) percent of total shares
7
18. Which of the following is not a feature of common stock?
Guaranteed dividend payments
Voting rights
Limited liability
Residual claim
8
1. What does a stock represent?
A company’s liability
A certificate of share-ownership in a Joint Stock Company
A form of debt security
A loan given to a company
9
45. What is one of the main benefits of a stock split?
) It guarantees higher returns for investors
It eliminates the risk of stock price declines
It increases liquidity and trading volume
It reduces the company's total value
10
13. If a company does not set a par value in its Charter, how are its stock certificates issued?
As preferred stocks
As non-par value stocks
As common stocks with a default par value of $1
As treasury stocks
11
67. What are penny stocks?
Stocks in technology startups
Common shares of small companies traded for less than one dollar per share
Stocks with high dividend yields
Stocks in large, well-established companies
12
26. How does cumulative voting benefit minority shareholders?
It enables them to concentrate their votes on fewer candidates
) It gives them additional shares for voting
It allows them to control all board seats
It removes majority shareholders from the voting process
13
40. What does limited liability mean for common stockholders?
Their losses are limited to the original amount of their investment
They must cover the company’s debts beyond their investment
They are personally responsible for the company's bankruptcy
Their personal wealth is used to repay corporate creditors
14
59. What is the purpose of a sinking fund in relation to preferred stock?
To manage early redemption by making payments to a trustee
To allow preferred stockholders to vote on company matters
To increase the market price of preferred stock
To guarantee a fixed dividend payment every year
15
62. Why do investors buy value stocks?
They pay high dividends consistently
They have the highest potential for capital appreciation
Investors hope that the stock’s price will rebound
They have a high price-to-earnings (P/E) ratio
16
2. What is another name for stocks?
Liabilities
Dividends
Bonds
Equities
17
68. Which of the following is NOT a reason companies issue stocks?
To launch new products
To pay off debt
To decrease the company’s market value
To expand into new markets
18
42. How does liability differ between corporations and sole proprietorships/partnerships?
Both corporations and sole proprietorships have unlimited liability
Corporations have unlimited liability, while partnerships do not
Corporations limited liability, while partnerships have unlimited liability
Sole proprietorships protect personal wealth, while corporations do not
19
11. Which of the following is a key difference between common stocks and preferred stocks?
Preferred stockholders have voting rights, while common stockholders do not
Preferred stockholders receive dividends before common stockholders
Common stockholders receive fixed dividends
Common stocks have priority over preferred stocks in liquidation
20
66. What is the term used for a startup valued at more than $10 billion?
Decacorn
Hectocorn
Unicorn
Penny stock
21
47. In a two-for-one stock split, what happens to a single $100 share?
It turns into two shares, each worth $50
It turns into four shares, each worth $25
) It remains a single $100 share
It turns into two shares, each worth $100
22
46. Why do companies conduct stock splits?
To reduce the number of shares available in the market
To decrease investor demand
To prevent stock from being traded
To make shares more affordable for a broader range of investors
23
23. According to the effect of reinvestment of earnings, how does it impact the return components?
Dividend component decreases, and capital gains component increases
Both dividend and capital gains components increase
Dividend component increases, and capital gains component decreases
Both dividend and capital gains components decrease
24
53. What is a key feature of preferred stock compared to common stock?
Preferred stockholders have a higher risk than common stockholders
Preferred stockholders receive dividends before common stockholders
Preferred stockholders can issue new shares
Preferred stockholders have voting rights
25
16. 100 shares of par-stock with par value of $1 are issued at $15, how is the additional paid-in capital recorded?
$100
$1,000
$1,500
$1,400
26
6. What does a balance sheet report?
A company’s assets, liabilities, and shareholder equity
A company’s financial performance over a period
Only a company’s revenue and expenses
Only a company’s profits
27
72. What is the key characteristic of a zero-coupon bond?
It pays interest periodically
It is issued by government-affiliated organizations
It has no maturity date
It does not pay interest but trades at a discount
28
12. What does the par value of a share represent?
The expected dividend payout
The highest price a stock has ever traded
The market value of the stock
The minimum legal price at which a company can issue its shares
29
36. Which of the following statements about the NYSE's policy on classes of stock is correct?
NYSE requires all shares to have equal voting power
NYSE prohibits all companies from having multiple classes of stock
NYSE allows all companies to create classes of listed common stocks freely
NYSE generally does not allow multiple classes of stock but with exceptions
30
5. What must an LLC do to be listed on the stock exchange?
Increase the number of shareholders
Apply for a business license
Reorganize into a Joint Stock Company (JSC)
Merge with another company
31
74. What does the face value (par value) of a bond represent?
The amount the bondholder initially paid for the bond
The money amount the bond will be worth at maturity
The price at which the bond is traded in the secondary market
The interest earned from the bond each year
32
65. What is the definition of a unicorn company?
A startup company with a value of over $10 billion
A startup company that trades for less than one dollar per share
A startup company with a value of over $100 billion
A startup company with a value of over $1 billion
33
32. If two directors are up for election at any one time, how much stock is needed to guarantee a seat?
25% of the stock
33.33% plus one share
50% plus one share
10% of the stock
34
33. What is the purpose of proxy voting?
To allow shareholders to delegate their voting rights to another individual
To eliminate voting rights for minority shareholders
To prevent shareholders from replacing management
) To provide more voting power to company insiders
35
61. Which of the following is an example of an income stock?
A well-established utility company
A startup tech company
A company in financial distress
A company with a low price-to-earnings (P/E) ratio
36
27. In cumulative voting, how is the total number of votes for a shareholder calculated?
) Number of directors to be elected × Total shares in the company
Number of shares owned × Number of directors to be elected
Number of shareholders × Number of shares owned
Number of shares owned × Number of total votes cast
37
43. What happens during a stock split?
The number of shares increases, but the total value remains the same
The stock price increases significantly
The company's total market value increases
Each shareholder loses a portion of their investment
38
60. What is a key characteristic of growth stocks?
They have a low price-to-earnings (P/E) ratio
They have earnings growing at a faster rate than the market average
They provide high and consistent dividends
They are always associated with well-known, established companies
39
73. Which U.S. government debt security has the longest maturity?
Treasury bills
Treasury notes
Municipal bonds
Treasury bonds
40
75. What does accrued interest in bond markets refer to?
Interest that accumulates between coupon payment dates
The premium paid by investors for high-rated bonds
The difference between the bond’s face value and its issue price
Interest paid at the maturity of the bond
41
37. In Alphabet's stock structure, what distinguishes Class B shares?
They are held by the public and carry one vote per share
They are preferred shares with fixed dividends
They are created through a stock split and have no voting rights
They are held by company insiders and carry 10 votes per share
42
57. When can preferred stockholders be granted voting rights?
If they hold their shares for more than five years
) If the company's stock price declines significantly
If preferred dividends are not paid for some time
If the company issues new common stock
43
35. Why do companies create different classes of stock?
To maintain control of the firm by giving insiders more voting power
To increase stock price volatility
To make all shares equal in voting rights
To eliminate shareholder influence on company decisions
44
31. Why does a staggered election make takeover attempts more difficult?
It makes it harder to gain control of a majority of the board quickly
It prevents majority shareholders from influencing elections
It increases the number of directors that can be elected at one time
It allows shareholders to cast all their votes for every director
45
3. How does stock issuance affect a company’s balance sheet?
It results in an increase in liabilities
It credits shareholders’ equity (paid-in capital)
It is recorded as an expense
It decreases the company’s assets
46
22. What are the two components of stockholder return over a period t−1 to t?
Operating income and capital gains
Interest income and dividends
Capital gains and dividends
Stock buybacks and dividends
47
34. What is a proxy fight?
A competition between different classes of stock for voting rights
A battle between shareholders for control of dividend payouts
An attempt to replace management by via proxy voting
A legal dispute over shareholder rights
48
52. What is the typical tax rate for dividends received by individual shareholders in the U.S.?
25%
15 to 20%
5%
10%
49
21. What are the two main components of return for common stockholders?
Bonds and dividends
Stock splits and stock buybacks
Interest and capital gains
Capital gains and dividends
50
8. Which financial statement provides a snapshot of a company's financial position at a specific point in time?
Cash Flow Statement
Income Statement
Balance Sheet
Statement of Retained Earnings
51
14. Which of the following statements is true about the priority of stockholders in the event of bankruptcy?
Neither common nor preferred stockholders have claim on company’s assets
Common stockholders get paid before preferred stockholders
Preferred stockholders get paid before common stockholders
Both common and preferred stockholders get paid at the same time
52
49. Which of the following is a right that stockholders have?
The right to determine executive salaries
The right to vote on mergers and other major company decisions
The right to be repaid before creditors in case of bankruptcy
The right to demand a fixed dividend payment each year
53
15. How is the paid-in capital of par-stocks calculated?
Market price per share × Number of shares issued
Par value per share × Number of shares issued
Total dividends declared × Number of shares issued
Retained earnings ÷ Number of shares issued
54
69. What is a benefit of buying stocks?
Obtaining voting rights at shareholder meetings
Receiving dividend payments
Gaining capital appreciation when a stock price rises
All of the above
55
54. What is the typical stated liquidation value of preferred stock?
$200 per share
$100 per share
$75 per share
$50 per share
56
9. What does the income statement focus on?
Cash flows and net income
Assets and liabilities
Revenue, expenses, gains, and losses
Shareholders’ equity only
57
17. What is the key difference in the accounting entry between issuing par-stocks and non-par stocks?
Non-par stocks do not involve any cash transactions
Non-par stocks require an additional paid-in capital account
Par-stocks are recorded only at their selling price
Par-stocks record additional paid-in capital, while non-par stocks don't
58
50. Why can't a corporation go bankrupt due to nonpayment of dividends?
Dividends are legally required payments
Dividends are not a liability for the corporation
Shareholders can force the company to pay dividends
The government guarantees dividend payments
59
41. How does bankruptcy affect common stockholders under limited liability?
Their personal wealth outside of stock ownership is protected
They gain additional shares in the bankrupt company
They are required to pay off the firm's debts
They lose their entire personal assets
60
63. What defines blue-chip stocks?
They are only found in the technology sector
They are always the most expensive stocks on the market
They provide the highest returns in the shortest time
Stocks in large, well-known companies with a solid history of growth
61
58. Why does preferred stock sometimes resemble debt?
It grants voting rights to shareholders
It has no obligation for dividend payments
It is always convertible into common stock
It often carries credit ratings and has a stated dividend
62
30. What is the main purpose of a staggered election?
To make it easier for minority shareholders to elect a director
To ensure that all shareholders have an equal number of votes
To minimize the impact of cumulative voting
To allow all directors to be elected at the same time
63
25. Under the "One share, one vote" principle, what does each share represent?
The right to manage the company directly
One vote in corporate decision-making
The right to receive dividends
A single directorship position
64
56. What happens to cumulative preferred dividends if they are not paid in a particular year?
They are carried forward as an arrearage
They are considered company debt
They are converted into common stock
They are permanently lost
65
20. What is the term used to describe the taxation of dividends at both the corporate and personal level?
Double taxation
Capital gains taxation
Tax inversion
Dividend exclusion
66
71. How do bond prices typically react when interest rates rise?
Bond prices decrease
Bond prices move randomly
Bond prices remain unchanged
Bond prices increase
67
10. Over what period does the income statement report financial performance?
A quarter or a year
A single business transaction
A company's entire history
A specific moment in time
68
64. Which of the following companies is an example of a mega-cap stock?
Microsoft
A small local startup
Instacart
Robinhood
69
51. How are dividends treated for tax purposes?
Dividends are tax-exempt for individual shareholders
Dividends are deductible as a business expense
Dividends are not deductible and are paid out of after-tax profits
Dividends are paid out of pre-tax corporate profits
70
70. What happens when a bond reaches its maturity date?
The bondholder must sell the bond to receive any returns
The bond automatically converts into company shares
The bondholder receives the principal amount back
The bondholder continues receiving interest payments indefinitely
71
7. What is the fundamental equation of the balance sheet?
Revenue - Expenses = Profit
Cash Flow = Revenue - Expenses
Gains + Losses = Net Income
Assets = Liabilities + Shareholders’ Equity
72
24. What is the primary purpose of voting rights for shareholders?
To determine executive salaries
To approve company financial statements
To regulate stock prices
To elect directors at annual shareholders' meetings
73
48. What is a preemptive right in stock ownership?
The right to purchase new stock before it is offered to the public
The right to receive dividends before other shareholders
The right to sell stock at any time without restrictions
The right to vote on company matters
74
19. Who determines the payment and size of dividends for common stockholders?
The government
The CEO
The stock exchange
The Board of Directors (BOD)
75
55. How is a cash dividend for preferred stock typically described?
As a percentage of company revenue
As a one-time bonus payment
As a percentage of market value
As a fixed dollar amount per share
76
4. What is a key difference between a Joint Stock Company (JSC) and a Limited Liability Company (LLC)?
LLCs are automatically listed on the stock exchange, while JSCs are not
JSC shareholders' liability is unlimited, while LLC owners' is limited
JSC investors do not own shares, while LLC owners do
JSCs can issue stocks, and LLCs can also issue stocks

Qs for Feb. 12&14 Flashcards | StudBud