Exercise

Answer true or false.

1. _____ For equity investors, potential gains equal potential losses.

2. _____ Treasury shares are a type of common stock that has voting rights and pays dividends.

3. _____ The right of limited liability applies to only preferred stockholders of a corporation.

4. _____ If common stock is held by direct registration, the security is listed on the issuer’s books in the owner’s name, and either the issuer or its transfer agent holds the security in book-entry form on the owner’s behalf.

5. _____ A stock bought by a customer and registered in the broker’s name is said to be held in street name, with the broker as the beneficial owner and the customer as the record owner.

Answer the following questions.

6. The current share price of Big Corporation is $100. Big has authorized 10 million shares. It has issued 5 million shares and has repurchased 1 million of those shares. How many outstanding shares does Big Corporation have, and what is Big’s market capitalization?

A. 5 million shares outstanding; $500 million capitalization

B. 4 million shares outstanding; $40 million capitalization

C. 1 million shares outstanding; $5 million capitalization

D. 4 million shares outstanding; $400 million capitalization

7. Put the following dates in the correct order in time:

I. Ex-date

II. Declaration date

III. Payment date

IV. Record date

A. I, II, III, and IV

B. II, I, IV, and III

C. II, IV, III, and I

D. IV, I, II, and III

8. If an investor wants to be eligible for a dividend previously declared with a record date of Friday, June 13, by what date should she purchase the common stock, and what is the ex-dividend date?

A. Purchase by Monday, June 9; ex-date Tuesday, June 10

B. Purchase by Wednesday, June 11; ex-date Thursday, June 12

C. Purchase by Tuesday, June 10; ex-date Tuesday, June 10

D. Purchase by Tue