Which of the following statements regarding dividends is true? a. Stock dividends immediately.
Which of the following statements regarding dividends is true? a. Stock dividends immediately increase the total value of the stockholders’ investment. b. Some companies do not pay dividends even when the company is profitable. c. Cash dividends and stock dividends both decrease total stockholders’ equity. d. A corporation has a legal obligation to pay dividends each year.
Stock dividend:
A stock dividend is a payment delivered to shareholders in shares instead of cash. The benefit of the stock dividend is that it rewards shareholders without dipping into the company’s cash reserves.
Answer and Explanation: 1
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Option ‘b’ is the correct answer. Some businesses choose not to pay dividends even though they are profitable. Since there is no legal requirement.
Investment Companies Questions Flashcards
An open end fund has a Net Asset Value of $10 per share. The minimum price at which a share can be purchased is:
A $10
B $10 plus a commission
C $10 plus a mark-up
D any price because this is negotiated in the market
The best answer is A.
Mutual fund (open-end management company) shares are newly issued by the fund to any purchaser. The purchaser pays the next computed Net Asset Value plus a sales charge if the fund imposes a “sales load.” For a “no load” fund, the customer would simply pay Net Asset Value – this is the minimum price for an open-end fund. This contrasts to a closed end fund, where the fund is traded in the market like any other stock. Any purchaser would pay the prevailing market price (which can be below, at, or above Net Asset Value) and would have to pay a commission to have the trade executed. Thus, a closed-end fund share is purchased at the prevailing market price plus a commission (or a mark-up if it is an OTC principal transaction).
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