Which of the following statements regarding the effects of a stock dividend is TRUE?

A) New capital is channeled to the company.

B) Net current assets are decreased.

C) The market value of the stock is decreased.

D) Capital surplus is reduced.

Answer: C) The market value of the stock is decreased.

If GHI currently has earnings of $3 and pays an annual dividend of $1.75 and GHI's market price is $35, the current yield is

A) 1.75%.

B) 3%.

C) 8.6%.

D) 5%

Answer: D) 5%.

A company currently has earnings of $4 and pays a $.50 quarterly dividend. If the market price is $40, what is the current yield?

A) 10%.

B) 15%.

C) 5%.

D) 1%.

Answer: C) 5%.

A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter, but the dividend has remained the same, it may be concluded that:

A) dividend yield to maturity has decreased.

B) current dividend yield has increased.

C) current dividend yield has decreased.

D) current dividend yield has remained the same.

Answer: B) current dividend yield has increased.

If a common stock is currently selling for $75 per share with a quarterly dividend of $.75, the current yield for the stock is:

A) 10%.

B) 4%.

C) 1%.

D) 3%.

Answer: B) 4%

GHI stock is at $10 par value and is selling in the market for $60 per share. If the current quarterly dividend is $1, the current yield is:

A) 1%.

B) 1.7%.

C) 10%.

D) 6.7%.

Answer: D) 6.7%.

A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is

A) 5%

B) 2%

C) 10%

D) 15%

Answer: A) 5%

GHI currently has earnings of $4 and pays a $.50 quarterly dividend. If GHI's market price is $40, the current yield is:

A) 15%.

B) 5%.

C) 1.25%.

D) 10%

Answer: B) 5%.

Your client owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will he own?

125 shares.

100 shares.

Cost of $25.

Cost of $20.

A) I and II.

B) II and III.

C) II and IV.

D) I and IV.

Answer: D) I and IV.

A company's dividend on its common stock is:

A) mandatory if the company is profitable.

B) specified in the company charter.

C) determined by its board of directors.

D) voted on by shareholders.

Answer: C) determined by its board of directors.

ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's:

A) current yield per share has been unaffected.

B) yield to maturity has gone up.

C) current yield per share has increased.

D) current yield per share has decreased.

Answer: C) current yield per share has increased.

A company may pay dividends in which of the following forms?

Preemptive rights.

Cash.

Its own stock.

Its own bonds.

A) I and IV.

B) II and IV.

C) II and III.

D) I and III.

Answer: C) II and III.

Your customer owns 100 shares of DWQ trading at $50 per share. He hears that DWQ has declared a 25% stock dividend and wants to know how that will affect his holdings after the stock dividend is paid. You should advise the customer that based on the current price he will own:

A) 100 shares at $50.

B) 125 shares at $50.

C) 125 shares at $40.

D) 100 shares at $40.

Answer: C) 125 shares at $40.

Cement Mixer Corporation has 1 million shares of convertible preferred stock and 2 million shares of common outstanding. Each share of preferred can be converted into ½ share of common. The preferred stock is selling at $17.50 and the common stock is selling at $35.75. If all preferred shares were converted, how many shares of common stock would be outstanding after conversion?

A) 500000.

B) 2 million.

C) 3 million.

D) 2.5 million.

Answer: D) 2.5 million.

If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate?

A) Cumulative.

B) Convertible.

C) Callable.

D) Straight.

Answer: C) Callable.

A similarity between common and preferred stock is:

A) the dividend is fixed.

B) they have an equal vote.

C) both are evidence of corporate indebtedness.

D) the dividend must be declared by the board of directors.

Answer: D) the dividend must be declared by the board of directors.

In general, a corporation assumes the least risk when it obtains funds from:

A) sale of preferred stock.

B) a commercial bank.

C) sale of debentures.

D) sale of income bonds.

Answer: A) sale of preferred stock.

A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into 5 shares of common stock. The conversion price of the common stock is:

A) 25.

B) 100.

C) 1200.

D) 20.

Answer: D) 20.

Which of the following securities typically carries the highest dividend rate?

A) Straight preferred.

B) Convertible preferred.

C) Participating preferred.

D) Callable preferred.

Answer: D) Callable preferred.

A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the 2 previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders?

A) 0.

B) 8.

C) 16.

D) 24.

Answer: D) 24.