Chapter 4 SIE Exam Quiz Questions

1. What does 4% preferred stock pay annually? a) $.04 b) $4 c) $25 d) $40

$4 i) The par value of a preferred stock is $100, so $100 x 4% = $4

1. A corp has issued 10 million shares of common stock that are currently trading for $5 per share. There are 2 million shares of treasury stock. What is the total value of outstanding common stock shares? a) $8 million b) $10 million c) $40 million d) $60 million

$40 million i) Ten million issued shares minus 2 million treasury shares is 8 million shares outstanding. Eight million x $5 = $40 million

1. If a common stockholder received a dividend this year, which of the following would also be paid a dividend? a) Cumulative preferred b) Convertible preferred c) Participating preferred d) All of the above

All of the Above i) Preferred stockholders are always guaranteed a dividend before common stockholders. If a common stockholder received a dividend, all classifications of preferred stock would have also received a dividend.

1. The ex-dividend date is a) Two business days after the record date b) The date the corporation distributes the dividends to shareholders c) The last date to purchase the stock for cash settlement and receive the dividend d) The first date on which the stock trades without the dividend

The first date on which the stock trades without the dividend i) The ex-date is the first day that the stock trades w/o the legal right to receive the dividend. On the ex-date, the stock price drops by the amount of the dividend.

1. A client calls his reg rep to ask to buy 500 shares of XYZ because he heard a dividend has been declared, but not yet paid, and he wants to receive the dividend. How should the RR respond to the client? a) Place the order as an unsolicited order b) Place the order at a date to settle after the record date and accept the consequences for going against the client instructions c) Place the order according to the client's instructions d) Inform the client of the consequences and refuse the order

Inform the client of the consequences and refuse the order

1. Tim is an investor in Ajax Corp, a publicly traded corm. As an owner of common stock, Tim has the right to a) Inspect the financials of Ajax corp b) Hire mid-level managers for Ajax c) Choose where Ajax locates its corp headquarters d) Make day-to-day decisions at Ajax

Inspect the financials of Ajax corp

1. All of the following are true concerning preferred stock EXCEPT a) Preferred stock dividends must be paid annually regardless of corporate profitability b) Preferred stock dividends are always paid prior to common stock dividend being paid c) Bond interest payments are considered senior to preferred stock dividend payments d) Preferred stock certificates can be "callable" or a period of time throughout their ownership

Preferred stock dividends must be paid annually regardless of corporate profitability

1. Once the dividend is declared by a corporation, which of the following will occur? a) Retained earnings will decrease b) Working capital will increase c) Current liabilities will decrease d) Retained earnings will increase

Retained earnings will decrease

1. A corp offers its shareholders the privilege of obtaining its shares at a fixed price. What type of product is the corp issuing? a) Cumulative preferred stock b) Rights c) Puts d) Calls

Rights

1. What are the two types of voting processes used by corporations? a) Proxy and cumulative b) Preemptive and proxy c) Proxy and statutory d) Statutory and cumulative

Statutory and Cumulative

1. A shareholder owns 200 shares of stock with cumulative voting rights. If there are five vacancies being voted upon, what is the maximum number of votes the shareholder may cast for any one vacancy? a) 1 b) 25 c) 200 d) 1,000

1,000

1. ABC has earning of $5 per share and has paid a quarterly dividend of $.75. IF ABC is currently trading at $30 a share, what is the current yield for ABC's stock? a) 2.5% b) 7% c) 10% d) 17%

10% i) Current yield is determined by dividing the annual dividend by the current market price. Since ABC has paid a $.75 dividend quarterly, multiply $.75 times 4 to get an annual dividend income for $3 per share. Then, divide $3 per share by the current market price of $30 per share to get the yield of 10%

1. ABC originally authorized 1 million shares and has issued 600k shares. ABC has decided to buy 50k of their shares back and place them in treasury. How many shares are currently outstanding? a) 400k b) 550k c) 600k d) 1 million

550k i) The formula to calculate the number of outstanding shares is total issued shares - treasury stock = number of outstanding shares ( 600k - 50k = 550k)

1. All of the following apply to preferred stock Except a) Preferred stock is often convertible to common shares b) All preferred stock is cumulative for past dividends and allows for a dividend catch up at some point in the future c) Preferred shares are senior to common shares d) Preferred shares receive dividends prior to common stock when dividends are declared

All preferred stock is cumulative for past dividends and allows for a dividend catch up at some point in the future i) Although most preferred stock is cumulative, straight preferred (or noncumulative) also pays a stated dividend but does not "catch up" dividends that may have gone unpaid during any given period

1. An investor received a certificate from a commercial bank that represents his interest in shares of a foreign company on a foreign exchange. What is this certificate called? a) Certificate of authenticity b) American depository receipt c) Warrant d) Application

American depository receipt

1. Which of the following best describes the formula for current yield? a) Quarterly dividend / par value b) Annualized dividend / last reported trade price c) Annualized dividend / annualized market value d) Most recent dividend / book value per share

Annualized dividend / last reported trade price

1. The amount of stock a corporation is allowed to issue is called a) Treasury stock b) Authorized stock c) Outstanding stock d) Issued stock

Authorized stock

1. The ex-dividend date for XYZ is Monday, March 23. Under which of the following conditions would an investor purchasing XYZ receive the dividend? a) Buys XYZ Wednesday, March 25, for cash settlement b) Buys XYZ Friday, March 27, for cash settlement c) Buys XYZ Friday, March 20 in a regular way trade d) Buys XYZ Monday, March 23 in a regular way trade

Buys XYZ Friday, March 20 in a regular way trade i) If Monday, March 23 is the ex-date, then Tuesday, March 24 is the record date. Therefore, a reg way purchase on Friday, March 20 would buy the dividend because settlement occurs on Tuesday, March 24 (T+2) meeting the requirement that settlement must occur on or before the record date

1. If a corp wishes to retain the right to buy back their preferred stock at a future date, they will issue which type of stock? a) Participating preferred b) Callable preferred c) Convertible preferred d) Cumulative preferred

Callable Preferred

1. A corporation may distribute dividends in the form of a) Cash and stock only b) Company stock and stock of another corporation c) Cash, company stock and stock of another corporation d) Cash only

Cash, company stock and stock of another corporation

1. If a U.S. corporation was looking for maximum tax relief, which of the following investments should the registered rep recommend? a) Common stock issued by another U.S. corporation b) Common stock issued by a foreign corporation c) Treasury stock d) Bond

Common stock issued by another U.S. corporation i) Of these choices, a U.S. corporation would achieve the best tax relief by purchasing shares in another U.S. corporation. Dividends received from another domestic corporation qualify for the 50% exclusion from taxes. The investing corporation would only pay taxes on 50% of the dividend distributed.

1. Which type of stock would a person own for the best assurance of receiving dividend income? a) Participating preferred b) Callable preferred c) Convertible preferred d) Cumulative preferred

Cumulative preferred

1. Your client owns stock in a company that has announced a stock rights offering. If the client does not subscribe to the offer, his % of ownership interest in the company will a) Remain the same b) Be worth more c) Increase d) Decrease

Decrease

1. An American corp receiving which of the following is entitled to a 50% exclusion? a) Dividends and interest from a domestic corporation b) Dividends of preferred stock, but not common stock, of a domestic corp c) Dividends from common and preferred stock of another domestic corporation d) Dividends from common stock only of a domestic corporation

Dividends from common and preferred stock of another domestic corporation i) Under current tax law, corp may exclude from taxation 50% of common and/or preferred dividends they receive from stock owned in a U.S. corp. In order to qualify, they must own less than 20% of the dividend-paying corp outstanding stock

1. The equations for outstanding stock is a) Issued shares minus treasury stock b) Authorized shares minus treasury stock c) Issued shares minus unissued shares d) Authorized shares minus unissued shares

Issued shares minus treasury stock

1. Shares of stock that have actually been sold to the public are a) Treasury stock b) Outstanding stock c) Authorized stock d) Issued stock

Issued stock Issued shares are the amount of stock that has been sold to the public

1. Which of the following is true of preferred stock? a) It gives its owner the right to be paid dividends before common stock holders b) It is owned by common stockholders c) It pays the highest dividend d) It gives its owner the right to be paid dividends before bondholders

It gives its owner the right to be paid dividends before common stock holders

1. Which of the following is true about treasury stock? a) It has voting rights b) It has been issued and repurchased by the company c) It is authorized, but unissued d) It is entitled to a dividend

It has been issued and repurchased by the company

1. Preemptive rights allow a stockholder to a) Purchase warrants and call options b) Serve as a board member c) Maintain proportionate interest in the company d) All of the above

Maintain proportionate interest in the company

1. The term for active stock that represents the number of shares owned by the public is a) Authorized stock b) Outstanding stock c) Treasury stock d) Issued stock

Outstanding stock i) Outstanding stock is the term for issued stock less any treasury stock reacquired by the corporation

1. Which type of preferred stick would potentially pay dividends in addition to the stated dividend if a company has excess earnings? a) Noncumulative preferred b) Participating preferred c) Straight preferred d) Cumulative preferred

Participating Preferred i) Participating preferred allows investors to participate in excess earnings after the company has met its normal interest and dividend obligations. In other words, investors may receive dividends in addition to the stated dividend.

1. The board of directors declares a dividend on Wed, Oct 5, to shareholders of record as of Thursday, Oct 20. In an investor purchased the stock on Thur, Oct 20, in a cash transaction, which of the following statements would be true? a) The investor would be entitled to receive the dividend because the stock was purchased using cash settlement b) The investor is entitled to the dividend as long as the shares are purchased on or before the record date regardless of the type of settlement used c) The investor would not be entitled to the dividend because the sates were purchased after the ex-dividend day which would have been Tuesday, Oct 18. d) The investor would not be entitled to the dividend because the stock was purchased on the record date.

The investor would be entitled to receive the dividend because the stock was purchased using cash settlement

1. Jack owns 300 shares of cumulative, convertible preferred stock. All of the statements below are true EXCEPT a) Jack will receive any deferred or omitted dividends before common shareholders can receive a dividend b) Jack receives dividend payments before common shareholders c) The issuing company could call the stock at par value d) Jack can convert his shares to common stock at any time

The issuing company could call the stock at par value i) There is no call provision mentioned; therefore, the company could not call the stock

1. All of the following types of stocks would be eligible for dividends EXCEPT a) Outstanding stock b) Treasury stock c) Preferred stock d) Common stock

Treasury Stock i) Treasury stock has no voting rights and does not receive dividends since the corporation holds these shares

1. Authorized stock that has not been sold or distributed is referred to as a) Outstanding stock b) Unissued shares c) Treasury stock d) Issued shares

Unissued shares i) Unissued shares are authorized but have not been sold or distributed. Treasury stock has been issued and repurchased by the corp