Marion, Inc

question 63

Multiple Choice

Marion, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preferred stock and 20,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2014. The board of directors declares and pays a $65,000 dividend in 2015. What is the amount of dividends received by the common stockholders in 2015?

• A)$0
• B)$25,000
• C)$65,000
• D)$40,000

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Definitions:

CAPM

Capital Asset Pricing Model, a model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Risk Premium

An expected return in excess of that on risk-free securities. The premium provides compensation for the risk of an investment.

Market Portfolio

An investment portfolio that theoretically includes all assets in the market, with each asset weighted according to its market capitalization.

Expected Return-Beta Relationship

A concept in the Capital Asset Pricing Model (CAPM), indicating that the expected return on an investment is related to its beta, which measures the investment's volatility relative to the market.