Unit 3

Lambda Corporation has received a donation of 100,000 shares of its common stock from the spouse of the deceased founder of the company. This would appear on the company's books as

treasury stock.

Common risk factors found when investing in penny stocks would include all of the following except

unfavorable tax treatment.

All of the following are advantages of investing in American depositary receipts (ADRs) except

currency risk is virtually eliminated.

An investor purchased 200 shares of DCAST common stock at $200 per share. What is the adjusted cost basis per share of this position after the company pays a 100% stock dividend?

$100. The total value of the initial position is unchanged, remaining at $40,000 (200 times $200). After the stock dividend, the investor owns 400 shares (200 times 100% = 200 + 200 = 400). Therefore, the adjusted cost basis is $100.00 per share ($40,000 divided by 400 = $100).

A corporation is having a rights offering. The terms of the offering require six rights plus $60 to purchase one share. With the stock's current market price at $74 per share, the theoretical value of one right before the ex-rights date is

$2.00. Because the question is asking about the value before ex-rights, it means we use the cum-rights (with rights) formula; that is, the market price minus the subscription price divided by the number of rights it takes to buy one share plus one. Plugging in the numbers gives us ($74 - $60) ÷ (6 + 1) = $14 ÷ 7 = $2.00.

New offering: 800,000 units at $6 per unit. Each unit has two shares of common stock and one warrant. Each warrant is to purchase half a share of common stock. Based on this information, how many shares of stock will be sold, and how many warrants will be sold?

1.6 million shares and 800,000 warrants

A company may pay dividends in which of the following forms? 1. Preemptive rights 2. Cash 3. Its own stock 4. Its own bonds

2. Cash 3. Its own stock

Which of the following represent ownership in a corporation? 1. Debentures 2. Convertible bonds 3. Preferred stock 4. Common stock

3. Preferred stock 4. Common stock

Which of the following securities is considered the most junior?

Common stock. In the event of a company's bankruptcy, common stock owners have the lowest priority in claims against corporate earnings and assets.

Which of the following statements regarding ADRs is not true?

Holders generally have voting rights. ADRs, with few exceptions, do not have voting rights.

An investor who purchased 100 shares of PERD common stock on June 30, 2020, would receive long-term capital gain treatment if the stock is sold at a profit starting

July 1, 2021.

Which of the following is not a right conferred upon ownership of common stock?

Limited liability

For tax-reporting purposes, qualified dividends are considered to be what type of income?

Portfolio

XYZ Widgets is a publicly traded corporation. Upon the death of one of the founders of the company, a donation of 100,000 shares of XYZ stock is made by the executor of the deceased's estate. This would now be considered

treasury stock

Which of the following is true with respect to excess capital losses realized by an individual taxpayer?

They may be carried forward indefinitely until exhausted.

Which of the following equity securities has the longest expiration date?

Warrants

Which of the following statements regarding warrants is true?

Warrants are often issued with other securities to make the offering more attractive.

A type of alternative trading system that trades listed stocks and is required to register with the SEC as a broker-dealer is

an ECN.

A company has reverse split its common stock. The effect on the earnings per share will be

an increase.

Prior to effecting an initial penny stock transaction for a new customer, the registered representative must do all of the following except

determine if the client has been receiving monthly statements.

A corporation must have stockholder approval to

issue convertible bonds. Stockholders are entitled to vote on the issuance of additional securities that would dilute shareholders' equity

For individual public investors, dark pools of liquidity

lessen the transparency of the overall market as volume, quote and price information, and market participant identity is unknown.

Many investors diversify by adding foreign securities to their portfolios. Those who do so with ADRs are least likely to be concerned with

liquidity risk.

A company that has issued cumulative preferred stock

pays past and current preferred dividends before paying dividends on common stock.

Before effecting a penny stock transaction with a customer, the member firm must

provide the customer with a current bid and asked quote on the stock. To avoid price gouging, SEC Rule 15g-3 requires that no penny stock transaction may take place without the member firm providing the customer with the current inside market quotes.

All of the following are subject to the 5% markup policy except

spreads in new stock offerings. The 5% markup policy applies to markups, markdowns, and commissions

All of the following statements regarding over-the-counter (OTC) markets are true except

the OTC market is an auction market. The OTC market is a negotiated market in which market makers post their quotes to facilitate negotiating price.

KAPCO Manufacturing Corporation declares a 5-for-1 stock split on its outstanding shares of $20 par value common stock. This split will cause

the par value of the shares to change to $4 per share

American depositary receipt (ADR) owners have all the following rights except

the right to sell the ADR in the foreign market.

All of the following statements describe stock rights except

they are most commonly offered with debentures to make the offering more attractive.