Certified Plan Sponsor Professional (CPSP) Practice Exam

True or False: Stock signifies ownership of a portion of a corporation's equity.

1. True

2. False

3. Only if it pays dividends

4. Only for public companies

The correct answer is: True

Stock does indeed signify ownership of a portion of a corporation's equity. When an individual purchases stock in a company, they are buying a share of that company, which represents a claim on the company’s assets and future profits. This ownership can come in the form of common stock, which typically allows shareholders to vote at shareholder meetings and potentially receive dividends, as well as preferred stock, which often provides fixed dividend payments but usually without voting rights. The essence of stock ownership is not contingent on dividends or whether the company is public or private. All stocks denote ownership regardless of whether dividends are issued or the company's public status. Thus, the statement that stock signifies ownership is accurate and reinforces the fundamental understanding of equity ownership in a corporation.