SIE Chapter 1

[C] Rights Offering

A corporation is planning to distribute new shares of common stock to its existing shareholders. This would be described as a [A] Best Efforts Agreement [B] Secondary Distribution [C] Rights Offering [D] Private Placement

[A] Common stock

A corporation that issued several types of securities is being liquidated. Investors who own which of the following securities will have the most junior claim to company assets? [A] Common stock [B] Convertible bonds [C] Preferred stock [D] Collateral bonds

Answer A: We can vote 250 for each director (250 X 2 directors = 500 votes). Answer B: So we can vote 500 for one director Answer C: We can vote 400 for one director and 100 for the other = 500 total. Answer D: We CANNOT vote 500 for each director (500X 2 directors = 1000). Too many votes.

A corporation with cumulative voting has two spots open on the Board of Directors. A customer who owns 250 shares could vote in all of the following ways EXCEPT: [A] 250 shares for each director. [B] 500 shares for one director. [C] 400 shares for one director, 100 shares for the other director. [D] 500 votes for each director.

[B] Will be considered as "issued" and "treasury" shares

A corporation's stock that has been issued and later repurchased by the corporation: [A] Will be cancelled and no longer available [B] Will be considered as "issued" and "treasury" shares [C] Will appear on the corporation's income statement as an administrative expense [D] Will appear on the corporation's balance sheet as an asset under "other investments"

[C] Must pay out a specified portion of its ordinary income as dividends

A correct statement concerning the federal tax treatment of a "qualified" Real Estate Investment Trust (REIT) is that it is: [A] Permitted to carry over any operating losses. [B] Not subject to the pass-through tax treatment. [C] Must pay out a specified portion of its ordinary income as dividends. [D] Not taxed on retained earnings.

[C] Must pay out a specified portion of its ordinary income as dividends.

A correct statement concerning the federal tax treatment of a "qualified" Real Estate Investment Trust (REIT) is that it is: [A] Permitted to carry over any operating losses. [B] Not subject to the pass-through tax treatment. [C] Must pay out a specified portion of its ordinary income as dividends. [D] Not taxed on retained earnings.

Warrant

A security which gives the holder the privilege of investing in a company's stock at a pre-determined price at any time, over a long period of time is known as a [A] coupon. [B] right. [C] bond. [D] warrant.

[A] It can pay a lower interest (coupon) rate EXPLANATION 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 (investors would be more willing to buy these notes when they are issued). The warrants do not make it more difficult to sell the security in the secondary market.

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? [A] It can pay a lower interest (coupon) rate. [B] The notes become less marketable at issuance. [C] It will be required to pay a higher interest (coupon) rate. [D] It will make the notes more difficult to sell in the secondary market.

[D] The corporation is selling additional shares and must provide existing shareholders with the ability to maintain their proportionate ownership.

ABC Corporation will be performing a preemptive rights offering. Which of the following is TRUE? [A] The corporation is offering long-term options to buyers of bonds to buy stock at a price that is currently above the current market price. [B] The corporation is changing the rights that shareholders have in association with their shares. [C] The corporation is attempting to preempt a takeover bid from a competitor. [D] The corporation is selling additional shares and must provide existing shareholders with the ability to maintain their proportionate ownership.

(D) They must be registered under the Investment Company Act of 1940

All of the following are characteristics of REITs EXCEPT: (A) They are publicly-traded securities and can be traded on an exchange or OTC. (B) They generally own income-producing properties like apartment buildings. (C) They distribute 90% of their income to shareholders. (D) They must be registered under the Investment Company Act of 1940.

[C] must pay all dividends in arrears prior to the payment of dividends on common stock.

If a preferred stock is "cumulative", it means that the stock [A] accumulates equity growth in a similar manner to common stock. [B] participates in additional earnings at a rate that is not fixed. [C] must pay all dividends in arrears prior to the payment of dividends on common stock. [D] pays dividends that increase over time with the rate of inflation.

[B] This would be a cyclical stock.

In looking at a particular stock's patterns, you notice that the stock has historically mirrored economic performance. Which of the following would be the BEST characterization of this stock? [A] This would be a speculative growth stock. [B] This would be a cyclical stock. [C] This would be a stock that is defensive with regards to economic fluctuations. [D] This would be a large capitalization blue-chip stock.

[A] The flow-through of partnership income and expenses to its members so that they can be reported on the members' individual tax returns.

In relation to limited partnerships, the "flow-through principal" refers to: [A] The flow-through of partnership income and expenses to its members so that they can be reported on the members' individual tax returns. [B] A provision in the partnership agreement that before a partnership interest is offered to anyone else it must first be offered to a general or limited partner. [C] The right of limited partners to inspect the books and records of the limited partnership. [D] Borrowing against the investment to create a greater asset value.

[A] 14,000,000 The company has 8,000,000 shares outstanding before any corporate action is effected. It then repurchases 1,000,000 shares, which is now treasury stock. The outstanding number of shares is reduced to 7,000,000 (issued stock - treasury stock = outstanding stock). After this, the company completes a 2 for 1 stock split. So the new outstanding share figure is: 2/1 x 7,000,000 = 14,000,000.

Leafy Trees Inc. has the following facts regarding its common shares as of April: Authorized shares: 10,000,000 Issued and outstanding: 8,000,000 May: It repurchases 1,000,000 shares. June: It completes a 2 for 1 stock split. How many shares are outstanding after the split? [A] 14,000,000 [B] 20,000,000 [C] 18,000,000 [D] 16,000,000

[B] Business day prior to the record date.

Normally a stock will begin trading ex-dividend on the: [A] Second business day prior to the record date. [B] Business day prior to the record date. [C] Second business day prior to the payable date. [D] Record date.

[A] Common stock

Of the following types of corporate securities, which generally provides full voting rights to the owners? [A] Common stock [B] Preferred stock [C] Serial bonds [D] Revenue bonds

[D] Get approval of the Board of Directors.

Prior to repurchasing its own shares in the open market, a corporation would usually be required to: [A] Amend its initial Registration Statement. [B] Get approval of the holders of common stock. [C] Get approval from the Securities Exchange Commission. [D] Get approval of the Board of Directors.

[D] Fluctuations in interest rates

Public utility common stocks generally experience greater price volatility than the common stocks of industrial companies due to which of the following? [A] Changes in the S & P 100 Index value [B] Computation of the Consumer Price Index [C] Net tangible asset value [D] Fluctuations in interest rates

B] Full participation in all liabilities incurred by the general partner(s).

Risks or disadvantages that may arise from participation as a limited partner in a limited partnership generally include all of the following EXCEPT: [A] Examination of the program by the IRS as a possible "abusive shelter". [B] Full participation in all liabilities incurred by the general partner(s). [C] Application of alternative minimum tax resulting from over-sheltering of personal income. [D] Relative illiquidity of the investment during the program's life.

[A] I, II, and III

The Board of Directors of a company paying dividends to stockholders is responsible for setting which of the following dates? Declaration date Payable date Record date Ex-dividend date [A] I, II, and III [B] I, III, and IV [C] II, III, and IV [D] All

[B] 9.5%

The stock of a corporation is selling at $55 per share and the corporation pays a quarterly dividend of $1.30. The yield is? [A] 2.4% [B] 9.5% [C] 4.2% [D] 4.7%

[C] only given to existing shareholders, proportionately to shares held.

When a company does a Rights Offering, the rights are [A] sold to the general public. [B] sold to only existing shareholders. [C] only given to existing shareholders, proportionately to shares held. [D] given to the public on a first come, first serve basis.

[D] Rights offerings allow existing shareholders to maintain their proportionate share of ownership when new shares are being issued.

When discussing rights offerings, which of the following statements is ACCURATE? [A] Rights offerings allow a third party to vote an investor's shares in the event that the shareholder cannot be reached. [B] Rights offerings cause an increase in market price to the debt securities of the company offering the rights. [C] Rights offerings are factored into the participation feature of preferred stock to ensure that preferred stockholders can achieve higher levels of profits. [D] Rights offerings allow existing shareholders to maintain their proportionate share of ownership when new shares are being issued.

[C] the right to vote their shares in the voting matter presented at the shareholders meeting

When the owner of common stock receives Proxy Material, which of the following do they then have? [A] First choice on new shares being issued by the company [B] their right to vote has been waived [C] the right to vote their shares in the voting matter presented at the shareholders meeting [D] the right to set the amount of the next dividend to be paid to the shareholders

B

Which of the following are reasons why Direct Participation Programs are formed as Limited Partnerships? The partnership is taxed at a lower rate than the rate of the partners The advantages of limited liability for the limited partners The tax advantages of the pass-through of profits and losses to the limited partners [A] I and II [B] II and III [C] I and III [D] All

[A] The market price of the stock is below the exercise price when they are issued.

Which of the following are true of warrants? [A] The market price of the stock is below the exercise price when they are issued. [B] All are perpetual. [C] They pay dividends. [D] The market price of the stock is considerably above the exercise price when they are issued.

[A] Common Stock

Which of the following investments would be subject to the greatest degree of financial risk for an investor? [A] Common Stock [B] Corporate Bonds [C] Municipal Bonds [D] Preferred Stock

[B] Minority shareholders have a better chance of electing a director of their choice.

Which of the following is true of cumulative voting? [A] It is advantageous to majority shareholders. [B] Minority shareholders have a better chance of electing a director of their choice. [C] Majority shareholders can always elect the entire board of directors. [D] A stockholder of 400 shares with 5 persons to be elected to the board could only vote 400 shares for each director of his choice.

D] Common Stock

Which of the following securities have over time best kept up with inflation? [A] Highly rated Corporate Bonds [B] Highly rated Municipal Bonds [C] Callable Preferred Stock [D] Common Stock

[A] Cumulative and participating

Which of the following types of preferred stock may receive more than the stated dividend? [A] Cumulative and participating [B] Pre-emptive preferred and secured preferred [C] Pre-emptive preferred only [D] Secured preferred only

[D] Weakening demand for real estate

Which of the following would NOT be considered an advantage when investing in Real Estate Investment Trusts (REITs)? [A] Potential appreciation in property values [B] Dividend income with competitive yields [C] Provides a liquid investment in an illiquid investment area [D] Weakening demand for real estate

[D] Dividend payments on a common stock

Which of the following would be paid last in terms of priority by a corporation? [A] Interest payments on a secured bond [B] Dividend payments on a cumulative preferred stock [C] Interest payments on an unsecured debenture [D] Dividend payments on a common stock

[B] A utility company

Which of the following would probably be most leveraged? [A] A chemical company [B] A utility company [C] An automobile company [D] A steel company

[B] A 3 for 1 stock split Stockholders must approve a split

With regard to common stock, prior stockholder's vote is required for which of the following? [A] 20% stock dividend [B] A 3 for 1 stock split [C] Primary distribution of 400,000 unissued shares [D] A purchase of 100,000 treasury shares

[D] 4,000,000 shares are outstanding.

A corporation has authorized common stock of 10,000,000 shares. 8,000,000 shares have been issued and 4,000,000 shares are treasury stock. Which of the following is true? [A] 14,000,000 shares are outstanding. [B] 10,000,000 shares are outstanding. [C] 8,000,000 shares are outstanding. [D] 4,000,000 shares are outstanding.

[A] Increases

A corporation increases the dividend payments to common stockholders. Assume that the price of the common remains unchanged. How does this affect the dividend yield of the stock? [A] Increases [B] Decreases [C] Remains constant [D] Cannot be determined with information provided.

[A] allows the holder a long-term ability to exercise and buy a specific number of shares of common stock.

A warrant that is issued with a debenture [A] allows the holder a long-term ability to exercise and buy a specific number of shares of common stock. [B] allows the holder a short-term ability to exercise and buy a specified number of shares of common stock. [C] pays interest in relation to the debenture until the warrant is exercised. [D] pays dividends in relation to the stock to which it converts prior to exercise.

B] receive fixed cash dividends.

All of the following are rights of a common stockholder EXCEPT for the right to [A] vote on important matters such as the Board of Directors. [B] receive fixed cash dividends. [C] inspect certain corporate books and records. [D] receive a stock certificate.

[D] Manufacturers of appliances

All of the following companies are examples of non-cyclical or defensive stocks except: [A] Public utilities such as water and gas [B] Companies selling pharmaceuticals [C] Energy providers [D] Manufacturers of appliances

[C] $195.00 5% Stock Div 19 1/2 cent Cash Div Record Date May 12 (Wed) Record Date May 20 (Thur) Ex-Date May 11 (Tues) Ex-date May 19 (Wed) May 12 Trade Date Since the ex-date is prior to purchase date, the investor is not entitled to the stock dividend. Since the ex-date is after the purchase date, the investor is entitled to the cash dividend.

ABC Company raised its cash dividend from 18 cents to 19 1/2 cents and also declared a 5% stock dividend. The record date of the cash dividend is Thursday, May 20 and the record date of the stock dividend is Wednesday, May 12. An investor buys 1,000 shares of ABC regular way on Wednesday, May 12. The customer will receive a cash dividend of? [A] $180.00 [B] $188.00 [C] $195.00 [D] $204.75

[B] With total annual gross revenue of less than $1 billion for its most recent fiscal year

An emerging growth company is generally defined as a company: [A] With total annual gross revenue of more than $1 billion for its most recent fiscal year [B] With total annual gross revenue of less than $1 billion for its most recent fiscal year [C] With total annual gross profits of less than $1 billion for its most recent fiscal year [D] None of the above

[C] Redeem the rights for their cash value

An investor that has received rights through a pre-emptive rights offering could do all of the EXCEPT: [A] Sell the rights in the open market. [B] Exercise the rights and subscribe to additional common shares. [C] Redeem the rights for their cash value. [D] Let the rights expire worthless.

[A] regular-way settlement.

Claire purchased 100 shares of ABC common stock on Monday, June 2nd, and pays for her purchase on Wednesday, June 4th. Assuming no other information, it can be assumed that this is a [A] regular-way settlement. [B] cash settlement. [C] standing settlement. [D] Reg T settlement.

[D] Losses incurred on a sale

Each of the following can be passed through to an investor who has purchased REIT shares EXCEPT: [A] Dividend received [B] Interest received [C] Rents from property [D] Losses incurred on a sale

[A] They are required to be traded OTC .

Which of the following is FALSE concerning rights? [A] They are required to be traded OTC . [B] They are freely transferable. [C] They normally have a short-term life span. [D] They may be listed on a stock exchange.

D] Preferred shareholders have preemptive rights ahead of common shareholders.

Which of the following is NOT a benefit of owning preferred stock rather than common stock? [A] Preferred could be convertible, allowing the investor a choice of conversion. [B] Preferred shares receive earnings prior to common shares. [C] Preferred shareholders have prior claims to the assets of the corporation if liquidation occurs. [D] Preferred shareholders have preemptive rights ahead of common shareholders.

[B] A mixture of common stock and preferred stock

Which of the following portfolios is entirely comprised of "ownership" positions? [A] A mixture of debentures and common stock [B] A mixture of common stock and preferred stock [C] A mixture of debentures and bonds [D] A mixture of common stock and bonds