Which of the following is NOT true about common stock?

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BlackTom AI · Accepted Answer

Consider what common stock represents and how it functions in corporate finance. 
Option 1: 'It represents ownership in a firm.' This is a fundamental characteristic of common stock: holders own a portion of the company and have a claim on assets and earnings proportional to their shares. 
Option 2: 'It comes with voting rights in a company.' Typical common stock grants shareholders voting rights on key issues, such as electing directors, which reflects their ownership stake. 
Option 3: 'Common stock owners are the residual claimants.' After all debts and any preferred stock obligations are satisfied, common stockholders have claims on the remaining assets and profits, i.e., residual claims. 
Option 4: 'Stockholders are paid constant dividends (same amount and regularly timed dividends).' This statement is not accurate for common stock in general: dividend payments are not guaranteed, can vary in amount, and may be skipped, depending on earnings, cash flow, and board decisions. Thus, this option describes an attribute that does not hold universally for common stock.

MSB-250-300-002 Proctored Midcourse Exam 2

Which of the following is NOT true about common stock?

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