Series 7 Exam Question 305: Answer and Explanation

Question: 305

Common stockholders in a corporation can do which of the following?

• A. Elect the corporation's board of directors
• B. Make decisions about the day-to-day dealings, such as the office supply dealer used by the corporation
• C. Receive interest payments
• D. Expect to be paid par value for their stock if the corporation goes out of business

Correct Answer: A

Explanation:

A. Common stockholders may cast votes for candidates to be members of the board of directors; therefore, Choice (A) is the correct answer. Choice (B) is incorrect because while common stockholders may vote on important issues that affect the welfare of the corporation, they do not have voting rights on the day-to-day operations of the corporation, like buying office supplies. Choice (C) is incorrect because a stockholder doesn't receive interest payments, bondholders do. Finally, Choice (D) is incorrect because a common stockholder's initial investment can be lost if a corporation fails; therefore, par value, which means little to common stockholders, is not guaranteed.