Review Set

A 2-1 split does which of the following? I. Increases the number of outstanding shares II. Decreases the number of outstanding shares III. Decreases par value per share IV. Decreases retained earnings A) I and III B) II and IV C) II and III D) I and IV

A) I and III

If a stock undergoes a 1-5 reverse split, which of the following increases? I.Market price per share. II.Number of shares outstanding. III.Earnings per share. IV.Market capitalization of the company.

A) I and III.

If a corporation attaches warrants to a new issue of debt securities, which of the following would be a resulting benefit to the corporation? A) Reduction of the debt securities' interest rate. B) Increase in earnings per share. C) Dilution of shareholders' equity. D) Reduction of the number of shares outstanding.

A) Reduction of the debt securities' interest rate.

For reporting purposes, an order to sell 25 shares of an OTC equity security priced at $230 per share is: A) 25 odd lots. B) 25 round lots. C) 1 round lot. D) 1 odd lot.

B) 25 round lots

Which of the following statements regarding ADRs are TRUE? I.They are issued by large domestic commercial banks. II.They are issued by foreign banks. III.They facilitate U.S. trading in foreign securities. IV.They facilitate a foreign investor who wants to trade U.S. securities. A) II and III. B) I and III. C) I and IV. D) II and IV.

B) I and III.

Which of the following statements regarding real estate investment trusts are TRUE? I. Hybrid REITs invest in both commercial property and residential property. II. Some REITs hold no real property but hold mortgages on commercial property instead. III. All dividend disbursements made by REITs will be recognized as qualified dividends by the IRS. IV. Dividends are taxed at the investor's ordinary income tax rate. A) I and III B) II and IV C) II and III D) I and IV

B) II and IV

A member of the investment banking department of ABC securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make? I. The exercise prices of stock rights are usually below CMV of the underlying security at time of issue. II.The exercise prices of warrants are usually above CMV of the underlying security at time of issue. III.Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. IV. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer. A) I, II and III. B) I and II. C) I, II, III and IV. D) I only.

C) I, II, III and IV.

The rate on an adjustable preferred stock may be indexed to the: A) Consumer Price Index. B) Dow Jones Industrial Average. C) Treasury bill rate. D) Producer Price Index.

C) Treasury bill rate.

The issuer of an ADR is a: A) domestic branch of a foreign bank. B) domestic branch of a domestic bank. C) foreign branch of a domestic bank. D) foreign branch of a foreign bank.

C) foreign branch of a domestic bank.

A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is A) 2% B) 10% C) 15% D) 5%

D) 5%

The following chart shows the capital transactions of ABC Corporation. Date Event Amount 10-19-96 Initial Offerings 6 million shares 4-1-2000 Treasury Purchase 500,000 shares ABC wants to raise additional capital by selling 2 million shares through a rights offering and engages an underwriter on a standby basis. By the expiration date, ABC was only able to sell 1 million shares to existing shareholders. After expiration, how many shares does ABC have outstanding? A) 6.5 million. B) 7 million. C) 8 million. D) 7.5 million.

D) 7.5 million.

Which of the following statements regarding ADRs are TRUE? I.Dividends are payable in the underlying foreign currency. II.Dividends are payable in U.S. dollars. III.Holders have voting rights. IV.Holders do not have voting rights. A) I and III. B) I and IV. C) II and III. D) II and IV.

D) II and IV.

ABC Inc. has 1 million shares of common stock outstanding ($10 par value), paid-in surplus of $10 million, and retained earnings of $10 million. If ABC stock is trading at $20 per share, what would be the effect of a 2-1 stock split? A) The number of shares outstanding would decrease by 50%. B) The market price of the stock would double. C) The retained earnings would be decreased by $10 million. D) The par value would decrease to $5 per share. .

D) The par value would decrease to $5 per share. .

Which of the following securities is subject to the greatest risk? A) Series EE bond. B) A-rated municipal bond. C) BAA-rated ABC convertible bond. D) XYZ Inc., common stock.

D) XYZ Inc., common stock.

All of the following are characteristics of a rights offering EXCEPT: A) it is issued to current stockholders. B) the rights are marketable. C) the subscription price is below the CMV. D) the subscription period is up to 2 years.

D) the subscription period is up to 2 years.