Equities and Investments or Stocks and Shares

(11) Company P has 1,200 shares of common stock outstanding, and Company Q has 800 shares of common stock outstanding. If both companies pay a dividend of $4 per share, which company pays a higher total annual dividend?

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

Answer

Correct Answer: (a) Company P
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company P: \[ \text{Total Annual Dividend (Company P)} = \text{Number of Shares (Company P)} \times \text{Dividend per Share} = 1,200 \times 4 = $4,800 \]
For Company Q: \[ \text{Total Annual Dividend (Company Q)} = \text{Number of Shares (Company Q)} \times \text{Dividend per Share} = 800 \times 4 = $3,200 \]
Therefore, Company P pays a higher total annual dividend.

(12) An investor purchases 500 shares of a company’s preferred stock at $50 per share. If the annual dividend rate for preferred stock is 5%, what is the investor’s annual dividend income from this investment?

• (a) $250
• (b) $1250
• (c) $200
• (d) $500

Answer

Correct Answer: (b) $1250
The investor’s annual dividend income from preferred stock can be calculated by multiplying the number of shares by the annual dividend rate:
\[ \text{Annual Dividend Income} = \text{Number of Shares} \times \text{Annual Dividend Rate} = 500 \times 0.05 \times $50 = $1250 \]

(13) An investor buys 300 shares of a company’s stock at $40 per share. If the investor wants to earn a 6% annual yield, what should be the annual dividend per share?

• (a) $1.80
• (b) $2.40
• (c) $2.40
• (d) $1.80

Answer

Correct Answer: (c) $2.40
To calculate the annual dividend per share required to earn a 6% annual yield, you can use the following formula:
\[ \text{Annual Dividend per Share} = \text{Market Price per Share} \times \text{Yield Percentage} = $40 \times 0.06 = $2.40 \]

(14) A company’s stock is currently trading at $60 per share, and it pays an annual dividend of $3. What is the dividend yield percentage for this stock?

• (a) 2.5%
• (b) 5%
• (c) 6%
• (d) 10%

Answer

Correct Answer: (b) 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:
\[ \text{Dividend Yield Percentage} = \frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}} \times 100 = \frac{3}{60} \times 100 = 5\% \]

(15) Company R has 1,000 shares of common stock outstanding, and Company S has 2,000 shares of common stock outstanding. If both companies pay a dividend of $5 per share, which company pays a higher total annual dividend?

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

Answer

Correct Answer: (b) Company S
To determine the total annual dividend paid by each company, you can use the following formulas:
For Company R: \[ \text{Total Annual Dividend (Company R)} = \text{Number of Shares (Company R)} \times \text{Dividend per Share} = 1,000 \times 5 = $5,000 \]
For Company S: \[ \text{Total Annual Dividend (Company S)} = \text{Number of Shares (Company S)} \times \text{Dividend per Share} = 2,000 \times 5 = $10,000 \]
Therefore, Company S pays a higher total annual dividend.