Chapter 2 Practice Question Answers

1. 1. Answer: C. Common stockholders have the right to maintain their proportionate share of the company if more shares are issued. Holders of common stock have voting rights as a privilege of ownership. They vote to elect the corporate board of directors and to approve corporate resolutions, such as stock splits, mergers and acquisitions, and changes of business direction. They also have the right to inspect the books and records of the company. They do not have the right to vote on whether to declare a dividend. Instead, the board of directors declares the dividend.
2. 2. Answer: D. Common stockholders have the right to transfer their shares to someone else. Holders of common stock can vote on relevant matters, such as mergers and acquisitions. Common stockholders have the right to access records, including the minutes from the board of directors’ meeting. Common stockholders receive their dividends after preferred shareholders.
3. 3. Answer: C. To receive a dividend, the purchaser must be an owner of record on or before the record date. Shares of stock take two business days to settle, so to be the owner of record, the stock must be purchased at least two business day before the record date. One business day before the record date is called the ex-date, because investors who purchase on the ex-date or after will not receive the dividend. The ex-date in this case is March 3. Sandy did not purchase the shares before the ex-date, so she will not receive the dividend.  
4. 4. Answer: C. Stocks can be held as stock certificates, direct registration, or in street name. When stocks are held in street name, the brokerage is the legal owner and the purchaser is the beneficial owner. Beneficial ownership is not a manner that stocks can be held, however.
5. 5. Answer: B. A 2-for-1 split means that each investor will receive two shares for every one share, with the total value of the investment staying the same. T