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54. According to the Securities Act of 1933 it is against the law for a firm that is publicly
trading securities to deny an investor from knowing how the firm is doing financially.
55. An executive secretary at a major investment banking firm is asked to copy documents
that detail a major merger that's going to be finalized in the next two weeks. This merger will be a
positive outcome for one of the companies in this deal. The secretary is thrilled to read about the
merger, plans to call her broker immediately and buy stock in the company, and suggests that
you should also act on her stock tip. Since you are not employed at her firm your purchase is
legal.
56. Stocks represent shares of ownership in a company.
57. Stock certificates identify per share dividends, expressed as a percentage of par value.
58. Par value reflects the current market price for a stock.
59. Dividends represent a portion of a firm's profits that are distributed to bondholders first
then stockholders.
60. Although companies that issue bonds are required to pay interest, companies issuing
stock are not required to pay dividends.
61. When a corporation enjoys a profitable year, dividends must be paid.
62. Issuing new common stock usually expands ownership, giving all owners the right to vote
for the firm's board of directors.
63. Issuing new stock increases the firm's outstanding debt on their balance sheet.
64. If paid, dividends come from any profits remaining after the firm has paid taxes. The
company cannot deduct dividends as an expense of doing business.
65. Corporate management decisions are influenced by the desire to keep stockholders
happy.
66. Preferred stockholders have voting rights privileges not shared by common stockholders.
67. Preferred stockholders receive dividend payments before common stockholders are paid
any dividends.
68. If the firm should find itself in bankruptcy, preferred stockholders would have claim to the
value of any remaining assets before common stockholders.
69. Preferred stock may include
callable
and
convertible
provisions.
70.
Preemptive rights
provide common stockholders the first right to purchase any new shares
of common stock issued by the firm.
71. Cumulative preferred stockholders enjoy the first right to purchase any new shares of
stock issued by the firm.
72. Cumulative preferred stockholders enjoy a promise that missed dividends will accumulate
and be paid later, before any dividends are paid to common stockholders.
73. Both preferred stocks and bonds represent funding sources that require repayment to
investors.
74. Corporations that issue preferred stock incur a legal obligation to pay dividends to those
stockholders.
75. For the firm, the cost of paying dividends to common stockholders is higher than the cost
of the same amount of interest paid to bondholders.
76. The similarities between common stocks and bonds include a face or par value and a
fixed rate of return for investors.
77. While common stockholders of corporations have voting rights, preferred stockholders
generally do not.
78. A preferred stock's par value establishes the base used for calculating the preferred
stockholders' dividend.
79. A company with cash flow shortages must pay common stockholders their dividends
before paying preferred stockholders their dividends.
80. Preferred stockholders possess the first right to purchase any new stock the company
issues.
81. Zach purchased 200 shares of Fast Track Corporation last year. This year, he plans to
hire an attorney to go after the company for failure to pay dividends. If Zach follows through with
his plan, he will probably win the lawsuit because companies are obligated to pay their
stockholders dividends for owning and holding the firm's stock.
82. Through disciplined investing, Alyssa now owns 10% or 50,000 shares of a small biotech
company. Although she has enjoyed a lot of control, she realizes that in order for the firm to
acquire the funds to grow in a recessionary economy, it will need to issue more stock. Her regret
is that it will dilute her ownership.
83. A share of preferred stock currently sells for $120. It offers the investor a dividend rate of
8%, with a par value of $100. If the company is able to pay dividends, preferred stockholders
would receive a dividend of $9.60 per share.
84. When acquiring funds through the sale of a bond, the business incurs a legal obligation to
pay regular interest payments.
85. A bond represents a contract of indebtedness issued by a corporation that promises
payment of a principal amount plus interest at a specified future date.
86. The interest paid to bondholders represents the principal of the bond.
87. The interest rate paid to bondholders is sometimes called the coupon rate.
88. Although the interest rate is fixed when the bond is issued, the interest rate that one firm
must pay compared to another may vary depending upon risk factors such as the reputation of
the firm.
89. U.S. government bonds are considered safe investments. Therefore such government
bonds usually have a lower interest rate than corporate bonds.
90. The maturity date of a bond refers to the date on which the interest payment is due to be
paid.
91. Bond classifications include, but are not limited to Corporate bonds, T-bills, Treasury
bonds, Treasury notes, and Municipal bonds.
92. Standard and Poor's and Moody's are well-known companies that rate bonds.
93. Bond interest is usually paid in two times each year, even though the interest rate that is
usually quoted is an annual rate.
94. Interest rates vary with changes in the state of the economy.
95. Bonds represent a permanent source of funding for companies. The money firms acquire
by issuing bonds does not need to be repaid.
96. In the language of bonds, the terms "principal" and "face value" are synonymous.
97. Bondholders represent creditors of a firm.
98. As a legal contract, bonds issued by different companies carry the same level of risk.
99. Firms are at a disadvantage when issuing bonds because the interest rate that they must
pay to bondholders is not tax deductible.
100. As creditors of a firm, bondholders enjoy voting privileges for the firm's board of directors'
elections.
101. Both stocks and bonds represent temporary sources of funding for a firm. Eventually they
must be repaid.
102. By issuing bonds, a firm's debt level increases, which may adversely affect the firm's
image in the financial community.
103. Debenture bonds represent bonds that are not secured by collateral.
104. A sinking fund is a reserve account where the firm will periodically deposit funds in
anticipation of repayment of a bond issue on the maturity date.
105. A callable bond allows a bondholder to exchange his/her bond for shares of common stock
in the same corporation.
106. The owner of a convertible bond can exchange the bond for a specified number of shares
of common stock in the same corporation.
107. Raising long-term funds through the sale of bonds requires the firm to make debt
repayment when and if the organization has sufficient cash flow.
