Unit 1 Quiz 1
During time when interest rates are rising, which of the following preferred are likely to pay a higher annual dividend? a. Adjustable rate b. Callable c. Participating d. Convertible
a. Adjustable-rate preferred dividends are tied to benchmark interest rates such as Treasury securities. As these rates fluctuate up and down, so do the dividends on the adjustable shares.
Which of the following regarding established customers of a broker-dealer and the purchase of penny stocks are TRUE? i. They are exempt from the suitability statement requirement ii. They are not exempt from the suitability statement requirement iii. They are exempt from the disclosure rules iv. They are not exempt from the disclosure rules a. i and iv b. i and iii c. ii and iii d. ii and iv
a. An established customer is one who has effected a non-penny securities transaction or made a deposit of funds or securities into the account at least one year before the proposed penny stock trade or has made three purchases of penny stocks on three separate days involving three separate issues. Established customers are exempt from the suitability statement requirement but are subject to the disclosure rules.
A corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might the corporation take? a. Offer a warrant on the stock with each bond b. Offer a stock dividend to the current shareholders c. Conducts a rights offering for potential bond buyers d. Offer the bond at a discount
a. Warrants are sometimes offered as sweeteners attached to bond issues to improve the marketability of bond. Rights offerings and stock dividends do not apply in this case, and selling the bonds at a discount would be self-defeating because the issuer wouldn't be able to raise the needed capital.
A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares? a. 25 shares b. 250 shares c. 100 shares d. 125 shares
a. stock rights (aka preemptive rights or subscription rights) give current shareholders the ability to preemptively purchase enough shares to maintain their proportionate ownership of the corporation. This prevents their dividend and voting power from being diluted. The shares outstanding in this case will go from 1,000,000 to 1,250,000. this investor must thus go from owning 100 shares out of 1,000,000 to 125 shares out of 1,250,000. This would require that the investor be able to purchase an additional 25 shares.
Common shareholders have the right to a. access a company's books and record with SEC permission b. limited access to a company's books and records c. full access to a company's books and records d. no access to a company's books and records
b. By virtue of owning the company's common stock, shareholders have a limited right to review the company's books and records. For example, they have the right to examine the minutes of meetings of the Board of Directors (BOD)
Regarding preferred stock, all of the following are true EXCEPT a. The right to vote on corporate issues is not available for preferred shareholders b. A corporation issuing common shares must issue at least one class of preferred shares c. Preferred shareholders have no preemptive rights that precede the preemptive rights of common shareholders d. Preferred shareholders are paid before common shareholders in the event of a corporate bankruptcy
b. No corporation is required to issue any class of preferred stock. Preferred shareholders have no voting rights or preemptive rights but are paid before common shareholders in the event of corporate dissolution.
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. 10% b. 2% c. 4% d. 6%
b. The states 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 an additional participating 2%.
A corporation has issued cumulative preferred stock a. pays the preferred dividend before paying the interest payments due on its outstanding bonds b. pays only current dividends with no liability c. pays past and current preferred dividends before paying dividends on common stock d. pays only the current dividends on the preferred, before paying a dividend on the common and then pays any past due dividends
c. Dividends in arrears (those missed) on cumulative preferred have the highest priority of dividends to be paid. Current and unpaid past dividends on cumulative preferred stock must be paid before common stockholders can receive a dividend. Bond interest, however, is always paid before any dividends, preferred or common.
Restricted shares, those that are unregistered, meaning that they were not attained in a public offering, may be sold by a non-affiliate a. at any time but with volume restrictions b. freely, with no holding period or volume restrictions c. after holding them for six months and freely thereafter d. after holding them for six months but then subject to volume restrictions
c. Non-affiliate holding unregistered shares must wait six months before divesting of those share, but because they are non-affiliates, they may sell freely (without volume restrictions) thereafter.
Securities acquired through some means other than a registered public offering are know as a. control b. convertible c. restricted d. affiliate's stock
c. Restricted securities are those acquired through some means other than a registered public offering. Securities purchased via a private placement are an example. These securities may not be sold (are restricted) until they have been held fully paid for 6 months.
An individual owning shares of a corporation's common stock would have all of the following rights EXCEPT a. to review a list of stockholders b. to vote when unable to be present at a shareholder meeting c. to vote for those who will serve on the BOD d. to declare dividends
d. Common shareholders have a number of rights. While they may receive dividends, declaring dividend is a function of the BOD
Which of the following corporate actions are designed to allow investors to buy shares of stock under specific, defined conditions? i. A rights offering ii. A forward split iii. Issuing warrants iv. A stock dividend a. ii and iv b. ii and iii c. i and iv d. i and iii
d. A rights offering allows current shareholders to purchase enough additional stock to maintain their proportionate ownership of the corporation, in the event more shares are sold to the public. The shareholders may purchase the stock before the public has access and will purchase the stock at a discount from its market price. Warrants allow the owner to purchase a certain number of shares of stock at a specified price as a specified time later. Splits and stock dividends, the other choices, do not involve the purchase of stock but instead are adjustments to existing stock positions.
Characteristics common to penny stocks would include which of the following? a. Market price greater than or equal to $5 per share and unlisted b. Market price less than $5 per share and listed on an exchange or Nasdaq c. Market price greater than or equal to $5 per share and listed on an exchange or Nasdaq d. Market price less than $5 per share and unlisted
d. Penny stocks are generally defines as those with market price below $5 per share that are not listed (traded) an any exchange or Nasdaq
The rate on an adjustable preferred stock would most likely be indexed to a. the Producer Price Index (PPI) b. the Consumer Price Index (CPI) c. the Dow Jones Industrial Average (DJIA) d. the Treasury bill (T-bill) rate
d. The dividend on an adjustable-rate preferred stock is tied to a particular benchmark interest rate, and the Treasury bill rate is a common benchmark. The CPI, the PPI, and the DJIA are not interest rates
