SIE Unit 1 Qbank

DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders A) nothing. B) $4.00. C) $2.50. D) $1.00.

$4.00 With noncumulative preferred stock, missed or skipped dividends need not be paid or made up. However, in order to pay common shareholders in any year, preferred shareholders must receive their full dividend for that year. While it can be paid in one annual payment, quarterly, or however the board approves it to be paid, the total in this case would be $4.00. 4% × $100 par value = $4.00.

A common stockholder's voting rights apply to which of the following? 1) Election of the board of directors (BOD) 2) Declaration of dividends 3) Authorization or issue of more common shares 4) Changing suppliers for raw material or parts used in production

1&3 Common stockholders never vote directly on dividend payment or size. They may elect the BOD indirectly influencing the policy on payment of dividends) and may vote on issues concerning the company's capitalization, such as the issuance of more common stock. They do not vote on day-to-day business decisions, such as suppliers used.

MAS Corporation has enjoyed an extremely profitable year. It has been determined that those owning the MAS 4% preferred, participating to 6% preferred shares, will receive the full participating dividend. The participating shareholders will receive an additional dividend of A) 4%. B) 2%. C) 6%. D) 10%.

2%. The stated MAS preferred dividend is 4%, participating up to 6%. In this year, when it has been determined that they should receive the full participating dividend, they will receive the additional participating 2%.

For registered shares held by an affiliate (known as control stock), which of the following applies? A) No holding period, but volume limits always apply B) Six-month holding period, with sales allowed freely thereafter C) No holding period or any volume restrictions D) Six-month holding period, with volume limits thereafter

No holding period, but volume limits always apply Control stock would be registered shares held by an affiliate. There is no holding period, but there will always be volume limits for as long as the individual is an affiliate.

An investor needs to decide whether or not they would like to maintain their percentage of ownership in a company that has decided to increase the number of outstanding shares. Which of the following is the best description of what is taking place? A) Rights will be distributed to existing stockholders with an exercise price lower than the current market value. B) Warrants will be distributed to existing stockholders with an exercise price equal to the current market value. C) Rights will be distributed to existing stockholders; they have only two options: exercise the rights or let them expire. D) Warrants will be distributed to existing stockholders and they will have two to five years to decide whether or not to buy the stock at the strike price.

Rights will be distributed to existing stockholders with an exercise price lower than the current market value. Preemptive rights entitle existing common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company offers them to the general public. They are offered with an exercise price lower than the current market value and are issued (typically) for a period of four to six weeks (30-45 days). Existing shareholders who receive rights have three options: they may be exercised, sold in the secondary market, or allowed to expire at the end of their subscription.

Which of the following best describes the trade execution of American depository receipts (ADRs)? A) Trades are executed domestically in a foreign currency. B) Trades are executed domestically in U.S. dollars. C) Trades are executed overseas in U.S dollars. D) Trades are executed overseas in a foreign currency.

Trades are executed domestically in U.S. dollars. ADRs are often listed on a securities exchange such as the NYSE or Nasdaq and trade throughout the day. Trades in these securities are dollar denominated. ADRs trade and settle in the same fashion as a traditional U.S.-based common stock.

Different categories of preferred shares offered by an issuer A) all must have the same fixed dividend rate. B) must all be convertible shares. C) must all be callable shares. D) all have preference over the issuer's common shares.

all have preference over the issuer's common shares. Separate categories of preferred shares may differ in several ways, including dividend rate and profit participation privileges. However, all maintain preference over common stock shares issued.

Transactions where the penny stock rules are applicable would be those that A) are unsolicited. B) are neither solicited nor unsolicited transactions. C) are solicited. D) are either solicited or unsolicited.

are solicited. Unsolicited transactions (those not recommended by the broker-dealer or registered representative) are exempt from the penny stock rules. Solicited transactions are nonexempt, and the rules therefore apply.

An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor A) can only sell subject to volume limits. B) can sell the shares unrestricted at any time. C) must wait six months before any sales can be made. D) must wait six months before selling shares subject to volume limits.

can sell the shares unrestricted at any time. Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell.

Once a dividend is initially declared by the board of directors (BODs), any future dividend payments A) are guaranteed to be paid, but no amount is stipulated. B) carry no guarantee of payment in any amount. C) are guaranteed to be paid in at least the same amount as the initial declaration. D) are not guaranteed to be paid, but if they are paid, they must be at least equal to the initial declaration.

carry no guarantee of payment in any amount. While the potential to share in the company's profits by receiving dividends is considered one of the benefits of equity ownership, one of the risks is the possibility of dividend income decreasing or ceasing entirely. Dividends are not guaranteed in any way.

For preferred shares, the annual dividend payment is A) fixed and stated as a percentage of its current market value (CMV). B) fixed and stated as a percentage of its par value. C) subject to variation and stated as a percentage of its par value. D) subject to variation and stated as a percentage of its current market value (CMV).

fixed and stated as a percentage of its par value. A preferred stock's annual dividend payment is its fixed rate of return, unlike that of common shares where the dividend is subject to variation.

When a company wants to issue additional shares of stock, the preemptive right given to existing shareholders allows those shareholders to A) pass on their proportionate ownership in the corporation to an heir. B) decrease their proportionate ownership in the corporation. C) increase their proportionate ownership in the corporation. D) maintain their proportionate ownership in the corporation.

maintain their proportionate ownership in the corporation. In the event a corporation wants to issue additional shares of stock, the preemptive right given to existing shareholders allows the shareholders to maintain their proportionate ownership in the corporation by purchasing shares before the shares are available to new investors.

A shareholder owns preferred shares that allow for the possibility of receiving more than the stated dividend. This type of preferred share would be known as A) adjustable. B) convertible. C) callable. D) participating.

participating. In addition to the fixed stated dividend, participating preferred stock offers its owners the possibility of receiving a share of corporate profits that remain after all dividends and interest due other securities are paid.

The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as A) market risk. B) purchasing power risk. C) decreased dividend risk. D) interest-rate risk.

purchasing power risk Remember that the fixed dividends received by preferred shareholders are a stated percentage of par value. Purchasing power risk is the possibility that the income produced via the fixed dividend received will not purchase as much in the future for preferred shareholders as it does today due to inflation.