7.1 Equity Securities Introduction
Assessment Section 1
1
1/1
Stockholders own the remaining earnings after operations are paid for and creditors are
paid, making equity a _________ claim.
backlog
fixed
Correct
residual
limited
Stockholders have a residual claim on the earnings and the assets of the company. This
means that, each year, after the company pays for its operations and pays its creditors, any
residual or remaining earnings belong to the shareholders.
2
1/1
Stock and equity essentially mean the same thing in finance.
Correct
True
False
Equity represents ownership in a firm—that is, when you buy a share of a company’s stock,
you literally become a partial owner of that company.
7.2 Overview of Common Stock
Assessment Section 1
1
1/1
Common stock shareholders (in the aggregate) have all of the following rights EXCEPT:
Voting rights to elect the board of directors
, Input on hiring and firing upper management
Correct
Highest claims position in a liquidation case
The right to sell shares at will
Common stock has the lowest or last claim on the earnings and assets of the company in the
event of liquidation. This means that common shareholders receive firm assets only after
everyone else, such as debt holders and preferred stockholders, is paid.
2
1/1
Common stock represents ownership in the firm.
Correct
True
False
Common stock indeed represents ownership in a company. Holders of common stock
typically have voting rights and can benefit from dividends and capital gains.
3
1/1
Common stock guarantees an equal stream of future cash flows.
True
Correct
False
Unlike bonds or loans, which may guarantee a fixed repayment or regular coupon payments,
common stock does not guarantee an equal stream of future cash flows. In fact, although
dividends could be paid on common stock, some companies do not pay dividends or do not
pay the same amount in dividends to shareholders from year to year!
4
1/1
What are the two main types of stock?
Correct
Common and preferred
Assessment Section 1
1
1/1
Stockholders own the remaining earnings after operations are paid for and creditors are
paid, making equity a _________ claim.
backlog
fixed
Correct
residual
limited
Stockholders have a residual claim on the earnings and the assets of the company. This
means that, each year, after the company pays for its operations and pays its creditors, any
residual or remaining earnings belong to the shareholders.
2
1/1
Stock and equity essentially mean the same thing in finance.
Correct
True
False
Equity represents ownership in a firm—that is, when you buy a share of a company’s stock,
you literally become a partial owner of that company.
7.2 Overview of Common Stock
Assessment Section 1
1
1/1
Common stock shareholders (in the aggregate) have all of the following rights EXCEPT:
Voting rights to elect the board of directors
, Input on hiring and firing upper management
Correct
Highest claims position in a liquidation case
The right to sell shares at will
Common stock has the lowest or last claim on the earnings and assets of the company in the
event of liquidation. This means that common shareholders receive firm assets only after
everyone else, such as debt holders and preferred stockholders, is paid.
2
1/1
Common stock represents ownership in the firm.
Correct
True
False
Common stock indeed represents ownership in a company. Holders of common stock
typically have voting rights and can benefit from dividends and capital gains.
3
1/1
Common stock guarantees an equal stream of future cash flows.
True
Correct
False
Unlike bonds or loans, which may guarantee a fixed repayment or regular coupon payments,
common stock does not guarantee an equal stream of future cash flows. In fact, although
dividends could be paid on common stock, some companies do not pay dividends or do not
pay the same amount in dividends to shareholders from year to year!
4
1/1
What are the two main types of stock?
Correct
Common and preferred
