Series 65 - Chapter 1

Which of the following factors tends to affect the price of utility common stocks more than industrial common stocks?

Interest rates. b/c: Utility stocks are very strongly tied to interest rates since they are so highly leveraged (carry a lot of debt).

Which of the following can authorize the repurchase of a company's own stock in the secondary market?

Common and preferred stockholders b/c: Stockholder approval is not required for repurchasing a company's own stock in the secondary market; it only needs to be approved by the Board of Directors

All of the following are correct regarding common stock EXCEPT:

Common shares may be called by the issuing corporation after a specified date. b/c: Common stock is never callable.

A corporate stockholder has a "residual claim". This refers to the stockholder's right to:

Corporate assets remaining at dissolution after the satisfaction of senior obligations. b/c: A "residual claim" means that the stockholder has a claim on any assets remaining after the satisfaction of the creditors of the corporation that is in bankruptcy.

Which of the following is probably a growth stock?

Growth companies have high retained earnings and low dividends.

ABC Corp. plans to issue subordinated notes that include warrants. The warrants allow investors to purchase ABC common stock. Based on this information, which is most likely true of the notes?

It can pay a lower interest (coupon) rate b/c: With the inclusion of warrants with the subordinated notes, the corporation could pay a lower interest rate because of this added and attractive feature. Also, the notes will likely be more marketable

Which of the following statements about preferred stock is true?

Preferred stock is considered an equity security. b/c: Preferred stock represents equity (ownership). Generally, they don't have voting rights or fixed maturity dates. They have a prior claim on the assets of corporation upon dissolution (company becomes insolvent or goes bankrupt).

Which of the following are true of warrants?

The market price of the stock is below the exercise price when they are issued b/c: Because warrants are used as an incentive or "sweetener," the exercise price of the warrant will be more than the offering price of the new issue. As time passes and the market price of the new issue rises, the warrant will become valuable.

A change in interest rates would have the greatest effect on the market values of which of the following?

Utility and Preferred stock b/c: Changes in interest rates have the greatest affect on fixed income securities and highly leveraged companies (a lot of debt). The utility would be affected because utilities traditionally carry a lot of debt and the preferred stock would be affected because it is a fixed income security.

A common stockholder has all of the following rights except:

demand dissolution of the company's assets b/c: A common stockholder cannot demand the company to sell off its assets.

Regarding dividends paid to stockholders of a public company, the board of directors of the company is NOT responsible for setting which dates?

ex-dividend rate b/c: The ex-date is determined by the exchanges where listed stocks trade and by FINRA for OTC-listed stocks, not by the board of directors.

When the owner of common stock receives Proxy Material, which of the following do they then have?

the right to vote their shares in the voting matter presented at the shareholders meeting b/c: Proxy material is like an absentee vote and allows shareholders to vote their choice when the shareholder is unable to attend the shareholders meeting.

Which of the following would NOT be a right of a common stockholder?

to vote for officers of the company b/c: Common stockholders have the right to vote for the Board of Directors but NOT to vote for officers of the company