SIE chapter 2 test

A customer buys 100 shares of 6% preferred stock. What is the expected annual dividend payment this customer would receive assuming the board of directors declares a dividend to be payable this year?

$600. $100x .06 = $6 per share. The customer owns 100 shares for a total of $600.

Al owns 100 shares of stock of a company that has 1,000 shares that are issued and outstanding. How much of the company does he own?

10% —-> 100/1,000

XYZ corporation has issued 8% cumulative preferred stock. Two years ago, xyz paid a 5% preferred dividend. Last year, XYZ paid a 6% preferred dividend. This year XYZ wishes to pay a common dividend. The cumulative preferred shareholder must receive:

13% cumulative preferred stock must be paid all dividends in arrears plus the current year dividend before the common dividend can be paid.

Cumulative preferred stock provides for: 1) regular reinvestment of accrued dividends 2) opportunity to receive previous unpaid dividends 3) an additional dividend, after payment of dividends on common stock 4) additional issues at regular intervals

2. It is sometimes called 'catch up' stock.

An investor owns a 100 shares of stock that usually pays a 25 cent per share dividend per quarter. Last year, the stock paid a dividend for only three out of four quarters. What is the dividend yield if the stock is trading at $10?

7.5%. Dividend yield is a measure of the return on investment for a stock. .25 x 3 = .75/$10= 7.5%

An investor writes 5 XYZ Sep 50 calls at 2.20. At the options expiration date XYZ stock is currently trading at 49.50. This investor will realize:

A $1,100 gain. The total premium was $220 per contact ($2.20 per share x 100 shares) and the investor wrote 5 contacts for a total gain of $1,100 ($220 per contact x 5 contracts)

An investor had a long call position with a strike price of $50 and the premium paid for the option was $3. When is the option out-of-the-money?

A call option is out of the money when the market price of the stock is BELOW the strike price. In this example the strike price is $50, so when the market price of the stock is below $50 the option is out-of-the-money.

When an option writer does not own The underlying security and exposes themself to unlimited loss potential they have:

An Uncovered position referred to as writing a naked call

XYZ company will big pay a dividend this quarter on its 6% preferred stock. What remedy is available to the holders of the xyz preferred stock?

As equity stakeholders in the XYZ Corp the investors in the preferred stock must abide by the decision of the board and will face a loss of income this quarter. Dividend payments are not guaranteed even for preferred stocks. Bonds, however are debt instruments and corporations are legally obligated to pay interest and principal; if the corporation defaults on its debts then bond holders may be able to liquidate the corporation collateral to recover their investment. Only a cumulative preferred stock is required to make up any back dividends before paying dividends to common stocks. Preferred stockholders have no voting rights. Even if they did, only The board has the authority to declare a dividend payment.

A call contact has a exercise pride of $50. The current market value of the underlying stock is $50z the option contact is

At the money .

Which of the following statements regarding liability is false: A) a general partner has unlimited liability B) a corporation has limited liability C) a limited partner has limited liability D) a corporate stockholder has limited liability

B. The corporation has unlimited liability but it's owners (stockholders) have limited liability. The most that an equity holder can lose is the amount of their investment.

The management of a publicly held company decides to take the company private by making a tender offer for all the company's outstanding shares. This is known as:

Buy out. Privatization will occur when a company's management wants to buy out the public shareholders. The corporation purchases their own securities on the secondary market, or they present existing shareholders with a tender offer.

Which party benefits lost with callable preferred stock?

The issuing company benefits in a decreasing interest rate environment. The issuer, at its discretion, has the right to buy back the shares at a specific price, after a certain time and cancel the stock. If the preferred stock is canceled, the investor is obligated to sell the stock back at a specific price (at least par value). Usually the company will call the issue when the interest rates are low and they can reissue stocks with an and lower dividend.

Cumulative preferred stock provides for:

Opportunity to receive previous unpaid dividends. They are able to receive any and all previously unpaid dividends before common stockholders may receive a dividend. Sometimes called a 'catch up' stOck.

All of the following are true regarding ADRs except A. The British government may require Tax withholding on dividends paid to ADR holders B. A multinational bank has purchased blocks of XYZ Ltd. from the London stock exchange and holds those shares in its vaults C. Dividends from the ADRs will be paid in British pounds D. Each ADR could represent more than one shares of the underlying common stock

C. Dividends from ADR are paid in US dollars. ADRs wte created by major financial institutions that purchase large blocks of a foreign companys shares on its home stock exchqnge and hold those shares in their vaults. The firms then issue American depository recwipts which are then traded on domestic stock exchanges such as NYSE or Nasdaq. An ADR can represent one share or more than one share. The dividends may be subject to tax withholding by the foreign government.

ABC corporation has 3 Stockholders: Alan who owns 100 shares, better who owns 200 shares and Charlie who owns 150 shares. How could Betty lose out on any vote?

Charlie and Alan agree to votes their shares together

Ownership in a corporation is represented by

Common stock and preferred stock

What kind of preferred stock would provide an investor with the greatest opportunity for capital appreciation or growth?

Convertible preferred stock

Shares that a corporation purchase from existing shareholders are referred to as what type of stock

Treasury

Which of the following regarding a corporation that uses a statutory voting structure is true? A. Statutory voting gives the corporations creditors influence in its management B. Statutory voting allows shareholders to stack their votes towards one issue C. Statutory voting allows shareholders to vote by proxy D. Statutory voting benefits institutional investors.

D. In a statutory voting structure each shareholder gets one vote per share, per issue. The more shares an investor owns, The more votes he gets. An institutional investor such as a mutual fund can own millions of shares of a corporation and therefore can have millions of votes. Since large investors have more voting power, they tend to get their way. Only holders of a company's common stick have voting rights, it's creditors do not unless they have bought shares in the company as well as lending money to it. A cumulative voting structure allows shareholder to stack their votes towards one issue or one board member candidate . Proxy voting allows shareholders to mail their election ballots and all voting structures allow votes to be counted by proxy.

Option contacts that can be exercised on the expiration or maturity date are

European

ABC corporation offered its stockholders shares in ABCD GRoup in exchange for shares of ABC corporation. This offer was intended to split off ABCD Groupnfrom the parent company (AMC corporation) as a part of the firms planned restructuring. This is an example of:

Exchange offer. With an exchange offer, Which is considered a type of tender offer, the corporation offers shareholders the option of trading in their common stock shares for another security, such as a bond or preferred stock. Tender offers and exchange offered will change the number of shares a that are hold by the investing public and could affect the earnings and value of those holdings.

American depositary receipts are used to facilitate trading of

Foreign securities in the US

A common stock is selling at $14 per share. The issuers new product line has increased profits the last 3 quarters. As a result, the users board of directors has increased dividends each or the last three quarters even though the stock price has stayed the same. The common shocks yield will:

Increase. The yield on the common stock is computed by dividing the market price of the common stock into the dividend. If the common stock price has not changed, but the dividend continues to increase, the yield will increase.for example, if the stock costs $14.90 and the dividend is $1, the yield is 6.7% (1/$14.90) if the stock stays at $14.90 and the dividend increases to $1.50, the yield is 10% (1.50/14.90)

What is the correct formula for calculating a corporations number of outstanding common shares?

Issued shares- treasury shares. Outstanding shares are the shares that are currently trading in the secondary market. The way to determine the number is to take the original number of issued shares and subtract the treasury shares. Treasury shares are the shares that the company has purchased in the secondary market and therefore are no longer available to the public. These shares are not entitled to dividends and lack voting rights.

The record date to receive a dividend is set on January 14th. If a stockholder wishes to receive the dividend, they must well the stick in a regular way trade no earlier than:

January 13th

An investor purchased 1 OPQ put at 1.50. Currently OPQ common stock is trading at 44.50 per share. This put option is currently:

Out the money by $4.50. An option is out of the money when it's not profitable to exercise it. It would not make financial sense for the investor to sell OPQ stock at the $40 exercise price when OPQ is currently selling for $44.50. The difference between the strike price and the current mqrket price determines how far an option is either in or out of money. The out option is current out of the money by $4.59 ($40 strike price - $44.50 = $-4.50).

Which preferred stock has a minimum dividend but not a maximum?

Participating

Which type of preferred stock has a provision for an extra dividend above its regular specified rate? 1) cumulative preferred 2) participating preferred 3) straight preferred 4) callable preferred

Participating preferred. It is not limited to a fixed dividend. All other choices are limited to a fixed dividend.

Which type of preferred stock has a provision for an extra dividend above its regular specified rate?

Participating preferred. Participating preferred is not limited to a fixed dividend. All other choices are limited to a fixed dividend.

A member firm carrying customer accounts being held with equities must forward:

Proxies and related materials, annual reports, and information statements sent to the member by the issuer.

An investigator wants to begin a letter writing campaign to shareholders and requests a list of current shareholders from the transfer agent. What do shareholders have the right to?

Shareholders have the right to inspect the books, records and shareholders list of the corporation in which they have invested. The financial reports can be downloaded from the EDGAR database but not the shareholder list. No shareholder is restricted from receiving the list of shareholders. Answer: as a current shareholder, the investor is entitled to receive the names and addresses of other shareholder upon request.

An investor owns 3% or widget corporation stock. The investor has been provided with the right to purchase an additional 3% within the next 30 days. This is a description of

Subscription right. Also called preemptive right. These allow a shareholder to buy additional shares to maintain the same percentage of ownership . Rights are usually no more than 30 days. Warrants are long term. Standard options contacts expire in 9 months

Regular way settling for open contract is

T+1 (one day after the trade day)

Ex dividend date for a stock is

T+2? Got deleted

ABC corporation has declined to take the company private and to buy all existing shares from current shareholders. The corporation has sent an offer to all shareholders agreeing to purchase all existing shares at a price significantly greater than the current market price, with condition that the majority of shares are sold to the Company in this fashion. This action is an example of

Tender offering . A tender offer happens when a company publicly announces an offer to existing shareholders to purchase some or all the outstanding shares at a certain price. A company can offer to buy its own shares or another company could attempt to acquire another company by announcing a tender offer. The company making the offer will usually agree to but the shares at a premium above the current price to entice shareholders to sell.

An investor writes a call option. If they do not own the same amount or more of the underlying security they are

uncovered (naked)

The CBOE VIX measures:

volatility of the S&P 500index options :