Common Stocks and Stock Ownership Quiz

Common Stockholders Expectations

• Common stockholders expect to receive dividend income, although the dividend payments are not fixed and may vary.

Advantages of Stock Ownership

• One advantage of stock ownership is the potential for long-term capital appreciation.

Risks of Common Stocks

• Common stocks are subject to various risks, including market risk, liquidity risk, and business risk.

Ease of Buying and Selling Common Stocks

• Common stocks are considered an easy investment to buy and sell because they are widely traded on stock exchanges, allowing for easy marketability.

Opportunities Provided by Common Stocks

• Common stocks provide investors with the opportunity to participate in the growth and profits of the company.

Common Stockholders

• Common stockholders are known as owners or shareholders of the company.

Stock Splits

• The process of increasing the number of shares outstanding by exchanging a specified number of new shares of stock for each outstanding share is called a stock split.

Stock Spin-offs

• When a firm executes a stock spin-off, it typically indicates that the company is divesting a subsidiary or division to focus on its core business.

Rights Offering

• In a rights offering, existing investors participate in a pro-rata basis in the primary market.

Share Repurchase

• The process of repurchasing shares by the issuing firm is known as a share buyback or treasury stock.

Reasons for Stock Splits

• Firms execute stock splits under circumstances such as when the stock price becomes too high, making it less attractive to small investors.

Classified Common Stock

• Classified common stock refers to the classification of common stock into different classes, such as Class A and Class B shares, with different voting rights and dividend payments.

2-for-1 Stock Split

• In a 2-for-1 stock split, an investor with 200 shares would have 400 shares after the split.

Reasons for Buybacks

• The main reason for firms to execute buybacks is to increase the value of remaining shares and to return capital to shareholders.

Public Offering

• A public offering in the primary market involves the initial sale of securities by the issuing firm to raise capital.

Selling Securities in the Primary Market

• The three choices to sell securities in the primary market are public offerings, private placements, and rights offerings.