chapter 8

Question 1

summary of common shares

5 points

Answer 1

1. common shares are considered risk capital. if company goes bankrupt will lose money
2. Dividends are optional
3. Evidence of ownership is in street certificate form as they easier to transfer ownership.
4. CDS Clearing and depository services uses electronic methods to prove ownership and transfers
5. Trading units is a uniform amount of shares usually 100 a group of less is called an odd lot

Question 2

some of the benefits of buying stocks are?

Answer 2

1. potential capital appreciation
2. dividends
3. voting privileges
4. Favourable tax treatment with dividends and capital gains
5. Marketability - shareholdings can easily be decreased increased for most public companies
6. right to quarterly and annual reports and changes in company
7. right to see certain company documents
8. the right to question management at shareholder meetings
9. limited liability

Question 3

what are retained earnings?

Answer 3

Earnings kept within the company rather than paid out to shareholders. makes stock more attractive

Question 4

who makes dividend policy in a company?

Answer 4

the board of directors

Question 5

what are the two kinds of dividends companies give?

Answer 5

regular dividends

extra dividends usually at the end of the fiscal year

Question 6

Explain how it works when a company announces a dividend.

Answer 6

When the company announces they will say the date the board of directors voted on the dividend and the date it comes into effect. example voted on july 1st for july 21st
during this time people who by shares will not receive the new dividend this time period is called the ex dividend. the date at which shareholders bought who will receive dividends is called the dividend record date.

during the ex dividend date the seller receives the dividend not the buyer

• trades settle on the 3rd business day so if the bought 3 days before dividend record date. they will not receive dividends and 1 day before ex dividend record date.

ex dividend and cum dividend

Question 7

whats ex dividend and cum dividend?

Answer 7

ex dividend record date is the date at which after new shareholder will not receive dividends
cum dividend is a stock with dividend

Question 8

what are stock dividends?

Answer 8

a company can give stock instead of cash. these stocks are treated the same as cash dividends for tax purposes

Question 9

what are restricted shares?

Answer 9

same rights except do not have the same voting rights

Question 10

what are the 3 types of restricted shares?

Answer 10

1. non-voting
2. Subordinate voting - shares that have a right to vote but there is another class of share with more voting power
3. Restricted shares - can vote but are limited to how shares they can vote with

Question 11

what are 3 tax benefits of buy stocks in canada?

Answer 11

1. dividend tax credit
2. only 50% tax on capital gains
3. Stock savings plans tax credits

Question 12

How to tax work with dividends and bonds?

Answer 12

Dividends do not get taxed as they are considered to have taxs already accounted for.
bonds coupon rate have to pay taxes

Question 13

why do companies split stocks?

Answer 13

too keep the price lower so its more attractive

Question 14

what is a reverse split/consolidation?

Answer 14

when a stock price is too low can merge shares to bring up the price

Question 15

what are benefits of preffered shares?

Answer 15

Usually get a fixed dividend and are senior to common shares if company goes bankrupt. but they are junior to creditors and debt holders

Question 16

what is the preference as to assets clause?

Answer 16

clause dictates that preffered shares are senior to common shares if company defaults