Question

20 )Which one of the following statements is correct?

		a) The preemptive right grants shareholders the right to purchase additional shares in the company prior to shares available for public.
		b) Dividends become a liability of the firm on the date of payment.
		c) The stated value of most preferred stock is $1,000 per share.
		d) A market maker on the floor of an exchange is called a trader. 21 ) Under major voting, each share of stock allows the shareholder one vote, and each position on the board of directors is voted on separately. But with cumulative voting, each share of stock allows the stockholder a number of votes equal to the number of directors being selected. So major voting procedure helps protect minority shareholders. _____ True False

Answer 1

20) (a), is the correct answer.

(b) is wrong because, dividends become a liability on the date that they are declared, thus on the date that these dividends are paid off, they no longer stand as a liability (till the next dividend declaration.)

(c) is wrong because, a stated value is nominal amount of a stock that has no par value and it typically ranges between $0.01 to $1;

(d) is wrong because, there officially exists no market maker on the floor of an exchange as, a buyer's bid price and a seller's offer price are usually matched up, using a matching system of the stock exchange to meet the demand and supply.

21) This statement is True;

Cumulative Voting is a kind of proportional voting system, where every shareholder has more votes than his proportional holding in the company; as their votes are respectively multiplied by the number of directors to be elected. This ensures that the minority shareholders have a fair say in the voting process, compared to the majority shareholders.