A Company Has 10 000 Non- Cumulative Preference Shares Outstanding

question 10

Multiple Choice

A company has 10 000 non- cumulative preference shares outstanding and 20 000 ordinary shares outstanding. The preference shares pay an annual dividend of $5 per share. At the end of the current year, the company declares a dividend of $120 000. How is the dividend allocated between preference and ordinary shareholders?

• A)The dividend is allocated $12 000 to preference shareholders and $108 000 to ordinary shareholders.
• B)The dividend is allocated $60 000 to preference shareholders and $60 000 to ordinary shareholders.
• C)The dividend is allocated $50 000 to preference shareholders and $70 000 to ordinary shareholders.
• D)The dividend is allocated $5 000 to preference shareholders and $115 000 to ordinary shareholders.

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Definitions:

Treynor-Black Model

A portfolio optimization model that combines the market portfolio with a portfolio of select active bets to maximize portfolio performance under certain conditions.

Security Analysis

The examination and evaluation of various factors affecting the value of securities to make investment recommendations.

Asset Allocation

The strategy of dividing investments across various asset categories, such as stocks, bonds, and cash, to optimize risk and return.

Treynor-Black Model

A portfolio optimization model that adjusts for risk and incorporates passive and active components.