Chapter 4

The most unfavored feature of common stock is that it

• pays dividends

• carries limited liability

• is the residual claim against the firm's assets

• trade on an organized exchange

A difference between common and prefered stocks is:

• preferred dividends are payable only after ordinary dividends have been paid

• preference dividends are a fixed amount

• ordinary shares are less risky to investors

• preference shares have greater potential for capital gains

Which of the following is NOT true with respect to preferred stock?

• Preferred stock usually does not allow for significant voting rights

• If the firm does not have sufficient earnings from which to pay the preferred stock dividends, the preferred shareholders may force the firm into bankruptcy

• Normally, the owners of preferred stock do not participate in the profits of the firm beyond the stated fixed annual dividend

• Payment of preferred dividends is not a tax-deductible expense

IPO stands for

• Investor Preferred Option

• Internally Profitable Operations

• Initial Public Offering

• Initial Private Offering

The process of conducting an IPO

• is typically handled by an investment bank or stockbroking firm engaged by the firm

• requires a prospectus that is meant to overcome the problem of information asymmetry

• requires the firm satisfy the requirements of SEC

• requires stock price evaluation process

• All of these above

An ______order to buy or sell a stock means to execute the transaction at the best possible price

• market

• limit

• stop-loss

• stop-buy

"Participating" means that

• preferred shareholders do not vote

• the preferred stock dividend is not fixed

• preferred shareholders share the "'residual claim"

• shareholders do not direct day-to-day activities

Consider a company has 12 billion VND profit after tax. It decides to keep 2 billion VND for reinvestment and the rest will be paid out in dividends to sharholders. Number of common stocks in circulation is 5.000.000 shares. Preferred stocks account for 1 billion VND and will be paid the annual dividends of 20%. So the dividends for each common stock are:

• 1.960 VND

• 2.000 VND

• 2.360 VND

• 2.400 VND

Investor X has just sold 1.000 shares of ABC Company at the price of 40.000 VND per share. These shares were bought last year at 35.000 VND per share. He also received dividends of 2.000 VND per share. Calculate the investor X income on this investment.

• 5.000.000 VND

• 8.000.000 VND

• 7.000.000 VND

• 2.000.000 VND

Which is the world largest stock exchange?

• Ho Chi Minh Stock Exchange

• NYSE - New York Stock Exchange

• London Stock Exchange

• Shanghai Stock Exchange