Equities and Investments or Stocks and Shares

(6) Company X issues 1,500 shares of common stock at a market price of $20 per share. If the company’s annual dividend per share is $2, what is the yield percentage for this stock?

• (a) 10%
• (b) 5%
• (c) 10%
• (d) 15%

Answer

Correct Answer: (c) 10%
The yield percentage can be calculated by dividing the annual dividend per share by the market price per share and then multiplying by 100:
\[ \text{Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{2}{20} \times 100 = 10\% \]

(7) An investor purchases 300 shares of a company’s preferred stock at $25 per share. If the annual dividend rate for preferred stock is 6%, what is the investor’s annual dividend income from this investment?

• (a) $120
• (b) $150
• (c) $450
• (d) $180

Answer

Correct Answer: (c) $450
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 300 \times 0.06 \times $25 = $450 \]

(8) Company Y has 2,500 shares of common stock outstanding, and Company Z has 1,000 shares of common stock outstanding. If both companies pay a dividend of $3 per share, which company pays a higher total annual dividend?

• (a) Company Y
• (b) Company Z
• (c) Both companies pay the same total dividend
• (d) Insufficient information to determine

Answer

Correct Answer: (a) Company Y
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company Y: \[ \text{Total Annual Dividend (Company Y)} = \text{Number of Shares (Company Y)} \times \text{Dividend per Share} = 2,500 \times 3 = $7,500 \]
For Company Z: \[ \text{Total Annual Dividend (Company Z)} = \text{Number of Shares (Company Z)} \times \text{Dividend per Share} = 1,000 \times 3 = $3,000 \]
Therefore, Company Y pays a higher total annual dividend.

(9) An investor buys 400 shares of a company’s stock at $30 per share. If the investor wants to earn a 7% annual yield, what should be the annual dividend per share?

• (a) $2.10
• (b) $2.50
• (c) $2.10
• (d) $2.50

Answer

Correct Answer: (c) $2.10
To calculate the annual dividend per share required to earn a 7% annual yield, you can use the following formula:
\[ \text{Annual Dividend per Share} = \text{Market Price per Share} \times \text{Yield Percentage} = $30 \times 0.07 = $2.10 \]

(10) A company’s stock is currently trading at $40 per share, and it pays an annual dividend of $2. What is the dividend yield percentage for this stock?

• (a) 4%
• (b) 5%
• (c) 5%
• (d) 2.5%

Answer

Correct Answer: (c) 5%
The dividend yield percentage can be calculated by dividing the annual dividend per share by the market price per share and then multiplying by 100:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{2}{40} \times 100 = 5\% \]