Chapter 2 Practice Question Answers
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. 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 do not have the right to receive their dividends before preferred shareholders.
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 days 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. Answer: C. Bonds can be held as certificates that are registered in the owner’s name (direct registration) or in bearer form. Bearer bonds are no longer issued, but they are still traded on the secondary market. Bonds can be held in book-entry form in either street name or the owner’s name. When bonds are held in street name, the brokerage is the legal owner and the purchaser is the beneficial owner. Beneficial ownership is not a