Question

1. When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives:

1. the dollar amount of the transaction, less brokerage fees.
2. only the par value of the common stock.
3. nothing.
4. the dollar value of the transaction.

2. Excess cash held by a firm should be:

1. distributed to bondholders in the form of extra coupon payments.
2. reinvested by the firm in projects offering rates of return higher than the cost of capital.
3. reinvested by the firm in the financial markets.
4. reinvested by the firm in projects offering the lowest rate of return.

Answer 1

1.

The answer is option C - Nothing

The General Motors receiving anything because, the selling and purchase procedures is to be done with the same amount of price at same time. Here from this transaction share holding postion is exchanging but the didnt receiving nothing. Here ownership is transferring but there is not receives and payments of any amounts between them.

2.

The answer is option B - Reinvested by the firm in projects offering rates of return higher than the cost of capital.

Here the cost of capital refers to expected returns by the companies from some kind of secuirities. Here financial markets refers to the market place relating to the exchanging and transacting of securites. Coupon payments refers to the annual rate on bonds paid by the company.