Future Business Leaders of America (FBLA) Personal Finance Practice Test

What is the term for the distribution of money to a corporation's stockholders?

1. Dividends

2. Stock Splits

3. Capital Gains

4. Equity Financing

The correct answer is: Dividends

The term for the distribution of money to a corporation's stockholders is dividends. When a corporation generates profits, it may choose to share a portion of those profits with its shareholders in the form of dividends. This payment serves as a reward for the investors who hold the company's stock, reflecting the company's profitability and financial health. Dividends can be distributed in cash or additional shares of stock, and they are typically paid on a regular schedule, such as quarterly or annually. The decision to pay dividends and the amount of the dividend is determined by the company's board of directors, based on the company's financial performance and reinvestment strategies. Other terms related to stock ownership or investment serve different purposes. For instance, stock splits involve dividing existing shares into multiple new shares but do not involve the distribution of cash or profits. Capital gains refer to the increase in the value of an asset, typically realized when the asset is sold, rather than a distribution of profits. Equity financing refers to raising capital through the sale of shares in the company, which is distinct from the distribution of earnings to existing shareholders.