SIE Special Securities in Equity

A corporation is offering a new issue consisting of 100,000 units at $200 each. Each unit consists of 2 shares of preferred stock and a warrant to buy one additional common share. A full warrant allows the purchase of an additional common share at $5. If all the warrants are exercised, the corporation will have:

200,000 preferred shares and 100,000 common shares -since each unit consists of 2 preferred shares, 100,000 units * 2 = 200,000 preferred shares -Since a warrant which enables one to buy one additional share is also attached to each unit, 100,000 units * 1 = 100,000

An ADR has been issued where each ADR equals .1111 ordinary shares of the foreign issuer. If a client wished to buy enough ADRs to cover 100 ordinary shares, how many ADRs must be purchased?

900 100/.1111

The exercise price of a warrant is set at issuance at:

A premium to the market price of the common stock

All of the following statements are true about American Depositary Receipts EXCEPT:

ADR holders have voting and pre-emptive rights

Dividends are paid to the holders of which of the following?

ADRs

Which of the following actions taken by a corporation will raise additional capital?

Announcement of a rights distribution allowing existing shareholders to buy the additional stock

Which of the following would be considered owners of a coporation?

Both Common and preferred shareholders

If a corporation wishes to sell additional shares, which of the following persons can subscribe using pre-emptive rights?

Common Stockholders

Which statement is TRUE regarding ADRs?

Exchange listed ADRs must be sponsored

An ADR is a:

Foreign security held in foreign branches of U.S. banks

The essential difference between a sponsored and unsponsored ADR is:

Issuer sponsorship

All of the following terms describe rights EXCEPT:

Redeemable -Rights are not redeemable wIth the issuer

A customer owns 256 shares of ABC common stock. ABC declares a rights offering, which the terms being that for every 15 rights tendered, a shareholder may purchase one addition share at $24 per share. Any fractional rights holding may be rounded up to buy an additional share. If this shareholder wishes to subscribe, which statement is TRUE?

The shareholder can buy a maximum of 18 shares by paying $432 256 rights/15 rights per share = 17.06 shares, rounded up to 18 * 24 = $432

Which statement is TRUE about non-sponsored ADRs?

These ADRs are created without the participation of the foreign coporation

At the time of issuance, a warrant has:

Time value

American Depositary Receipts pay dividends in:

U.S dollars only

Which statement is TRUE regarding warrants?

Warrants are typically issued with an exercise price that is higher than the stock's current market price and would be exercised when the stock's market price is above the warrants strike price

All of the following statements are true regarding warrants EXCEPT:

Warrants generally have a maximum life of 2 months

Which statement is TRUE about the intrinsic value of rights and warrants when issued?

Warrants have no intrinsic value but significant time value