SIE Unit 2

Your client bought 100 shares of ABC at $50 per share and later received a 10% stock dividend. What is her new cost basis per share? How many shares does she now have? A) 110 shares at $45.45 B) 100 shares at $55.00 C) 110 shares at $55.00 D) 100 shares at 45.45

A) 110 share at $45.45 Her original cost basis was 100 × $50 = $5,000. She now has 110 shares still worth $5,000. $5,000 divided by 110 equals $45.45.

All all of the following are considered unique or non-standard corporate actions except: A) 3:1 stock split B) Merger C) Takeover D) Tender offer

A) 3:1 stock split Corporate actions where the adjustments to cost basis are standardized would include cash & stock dividends, even & uneven splits, and the issuance of rights and warrants. All other corporate actions are considered non-standard.

LMN Corporation has 10 million shares of common stock outstanding. LMN intends to offer an additional 2 million shares through a stock rights offering in order to raise additional capital. Your customer owns 500,000 common shares of LMN. How many stock rights will your customer receive when the rights are issued? A) 500,000 B) 2 million C) 100,000 D) 200,000

A) 500,000 A rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30-45 days. Existing shareholders receive one right per share owned. The number of rights required to purchase one share of the new issue depends on the number of outstanding shares and the number of new shares offered.

Harry's has announced a tender offer for 20 million shares of Jim's. If Harry secures all the shares, then they will control Jim's. The shareholder's of Jim's that submit their shares to the tender offer will realize which of these? (2 answers) A) A capital loss occurs if their cost basis is greater than the tender price B) There is no effect C) A capital gain occurs if their cost basis is less than the tender offer D) Investment income is received equal to the value increase of the new shares

A) A capital loss occurs if their cost basis is greater than the tender price C) A capital gain occurs if their cost basis is less than the tender offer Shareholders who tender their shares effectively sell the shares at the tender price ($30) and realize a gain or loss depending on wha their cost was for the shares tendered.

An investor interested in quarterly income should invest in: A) A common stock paying a high dividend B) A variable annuity C) A corporate bond D) Treasury notes

A) A common stock paying a high dividend Common stocks generally pay quarterly dividends, whereas corporate & treasury bonds pay interest semiannually.

Squidco, Inc., is issuing 100 million dollars in 4 ½% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 per share anytime in the next 10 years. Squidco common is currently trading at $29.95 a share. This is an example of a: A) Warrant. B) Stock right. C) Follow-on offering. D) Call.

A) A warrant A warrant is normally issued attached to a fixed-income security to attract more interest in the debt issue. Warrants are generally long term (5+ years) & have an exercise price that is higher than the current stock price

Which statement is correct about ADRs? A) ADR pricing is dollar based and fluctuates throughout the day B) ADR pricing is dollar based using end of day net asset value (NAV) C) ADRs are priced in foreign currency D) ADR pricing is dollar-based using an end of day public offering price (POP)

A) ADR pricing is dollar based and fluctuates throughout the day

A penny stock is defined as: A) An unlisted (not listed on a U.S. stock exchange) security trading at less than $5 per share B) An exchange-listed stock trading at $5 or less per share C) A stock in a company that has suffered a 50% devaluation within the most recent 30 calendar days D) An unlisted common or preferred stock trading for $5 or less per share

A) An unlisted (not listed on a U.S. stock exchange) security trading at less than $5 per share

A penny stock is: A) An unlisted security trading at less than $5 per share B) An exchange-listed security trading at $5 or less per share C) A stock in a company that has suffered a 50% devaluation within 30 calendar days D) An unlisted common or preferred stock trading for $5 or less per share

A) An unlisted security trading at less than $5 per share Recommending penny stock required additional disclosures due to the risk in these low priced issues. Clients must receive monthly statements if penny stocks are in an account

Snowflake Inc. has announced their intention to repurchase 5 million of the company's outstanding shares from the secondary market. This is called a: A) Buy back B) Repurchase agreement C) Tender offer D) Primary offering

A) Buy back If the company were buying the shares directly from shareholders at a preset price, it would be a tender offer. A repurchase agreement is a type of money market instrument. If snowflake were selling, it would be a primary offering

Which most likely requires shareholder approval? A) Changing the corporation's name B) Firing the CEO C) Declaring a dividend D) Hiring a new CFO

A) Changing the corporation's name This is a significant matter that likely needs shareholder approval. Everything else is well within the board's power

Which of these securities would likely provide the greatest potential for capital appreciation? A) Common stock B) Preferred stock C) U.S. Treasury STRIP D) Convertible bond

A) Common stock

Under Rule 144, which of these sales are subject to volume limitations on the number of shares sold? (2 answers) A) Control person selling registered stock held for 1 year B) Control person selling restricted stock held for 2 years C) Non-affiliate selling registered stock held for 1 month D) Non-affiliate selling restricted stock held for more than 6 months

A) Control person selling registered stock held for 1 year B) Control person selling restricted stock held for 2 years

Under rule 144, which sales are subject to volume limitations on the number of shares sold? (2 answers) A) Control person selling registered stock held for one year B) Control person selling restricted stock held for two years C) Non-affiliate selling registered stock held for one month D) Non-affiliate selling restricted stock held for six months

A) Control person selling registered stock held for one year B) Control person selling restricted stock held for two years Control persons (insiders) are always subject to volume limitations. Non-affiliates have no volume (or any other) restrictions in the sale of registered stock

An individual owning shares of a corporation's common stock would have all the following rights except: A) To declare dividends B) Vote when unable to be present at shareholder meetings C) To vote for who will serve on BOD D) To review a list of stockholders

A) Declare dividends This is a function of the BOD

Your customer has a strong preference for investing in equity securities, however, she is hoping to increase the amount of current income her portfolio generates. Which of these is least suitable for her? A) Duratech common stock, exciting new tech manufacturer B) Buymore Inc., a big box retailer with a long history of healthy dividend payments C) General motors, 4 3/4% preferred stock D) Long beach electric, a utility

A) Duratech common stock, exciting new tech manufacturer New, rapidly growing companies tend to pay little to no dividends The others all sound like decent sources of dividend payments

Another term for stocks & bonds: A) Equity & debt B) Shares & units C) Voting & non-voting D) Taxable & tax-free

A) Equity & debt

The SEC requires that notice of corporate actions be given for all except: A) Interest payments on the issuer's debt instruments B) Dividend payment's on the issuer's common stock C) The issuance of warrants to be attached to a bond offering D) A reverse split on the issuer's common stock

A) Interest payments on the issuer's debt instruments Payment of bond interest is an obligation and therefore not considered a special corporate action notice. Reverse splits and warrants are not regular happenings, and even though some companies pay dividends regularly, those aren't guaranteed and can be halted. So, these events would be considered special corporate actions and require notification to the marketplace

ABC corporation's BOD declared a $0.25 per share dividend on Wednesday June 15. The dividend will be paid to shareholders of record on Tuesday July 5. The dividend will be sent to shareholders on Tuesday July 26. What is the last day to purchase the stock & receive the dividend, assuming a regular way settlement? A) June 30 B) July 1 C) July 3 D) July 2

A) June 30 The ex-date for a corporation will be 1 business day prior to the record date. The record date is July 5. The day before is July 4, which is a holiday. The days before that are Sat & Sun. The first business day before the ex-date is Friday July 1st. The last day to purchase and qualify for the dividend in the day before the ex-date, June 30.

Big Tech Inc. trades OTC and the board has declared a $0.25 per share dividend on Tuesday May 2. The dividend will be paid to Big Tech common stock holders of record as of Tuesday May 24, and will be paid out on Wednesday June 8. What is the most likely ex dividend date? A) Monday May 23 B) Monday May 25 C) Tuesday May 23 D) Tuesday May 24

A) Monday May 23 The ex-date for a corporate dividend is typically one business day prior to the record date

Big Trucks has 3 open board seats. Big trucks operates under a cumulative voting system. Your client owns 300 participating preferred shares of Big Trucks. He has: A) No voting rights B) 300 votes total to spread among the 3 open seats C) 900 votes he can divide any way he wants among the three seats D) 300 votes for each of the open seats

A) No voting rights Your client owns preferred stock which carries NO voting rights

When the BOD declares a dividend: A) Owners of preferred stocks must be paid before any payment is made to common shareholders B) Owners of common shares must be paid at least the same amount as preferred shareholders C) Owners of preferred shares must be paid at least the same as common shareholders D) Owners of preferred shares are paid only after payment is made to common shareholders

A) Owners of preferred stocks must be paid before any payment is made to common shareholders This is known as the dividend preference allotted to preferred shareholders. There is no relationship between the amounts paid to preferred and common shareholders

A preferred stock dividend is stated as a percentage of: A) Par value B) 52-week average share price C) Current market value D) The company's net worth

A) Par value A preferred stock dividend is stated as a percentage of its par value, which is assumed as $100 for preferred shares, unless it has been stated differently.

To receive a dividend, the owner's name must appear in the transfer agent's books by: A) Record date B) Payable date C) Next business day D) Ex-date

A) Record date

Which is not a risk of owning common stock? A) Shares are transferrable B) Shares have a guaranteed value C) Stock generate a guaranteed income D) Stocks have a high priority if the corporation dissolves

A) Shares are transferrable Stocks are freely transferrable, this is a benefit, not a risk. Stocks neither have a guaranteed value nor produce a guaranteed income. Equities have the lowest priority in liquidation

For securities held in street name, which is true? A) The customer is the beneficial owner B) The BD is the beneficial owner C) The customer is the named/nominal owner D) The bank accepting the securities as collateral is the beneficial owner

A) The customer is the beneficial owner

ABC Corporation cumulative preferred stock would pay dividends in what order? A) The in arrears dividends, current preferred dividends, then common dividends B) The common dividend, current preferred dividend, then any in arrears dividends C) The current preferred dividend only D) The preferred dividends before paying the interest due on its outstanding bonds

A) The in arrears dividends, current preferred dividends, then common dividends Unpaid past (in arrears) preferred dividends on cumulative preferred stock and then any current preferred dividend must be paid before common stockholders can receive a dividend. Bond interest is always paid before dividends.

In a stock rights offering, which of the following statements is true? A) The subscription period is typically 30 to 45 days B) The number of rights issued is based on the number of new shares to be issued C) The exercise period is typically long term, five years or more D) The rights allow the holder to exercise and purchase the stock at a price higher than the market

A) The subscription period is typically 30 to 45 days A rights offering allows stockholders to purchase common stock below the current market price. The rights are valued separately from the stock and trade in the secondary market during the subscription period, which is typically 30 to 45 days. Existing shareholders receive 1 right per share owned. The # of rights required to purchase one share of the new issue depends on the number of outstanding shares and the # of new shares offered.

LQDT has 100 million outstanding common shares. They want to raise capital buy selling 100 million new shares. In order to do this, they must give their existing shareholders an opportunity to buy shares sufficient to maintain the shareholders percentage of ownership. In order to accomplish this, they would: A) Offer stock rights to existing shareholders B) Offer warrants to existing shareholders C) Suggest that existing shareholders go to the market & double their existing position D) Perform a stock split

A) offer stock rights to existing shareholders LQDT would give the right to purchase a portion of the newly issued shares to existing shareholders sufficient to maintain their current percentage of ownership via a stock rights offering. Warrants are long term and normally attached to a fixed-income offer. Neither the stock split for investors buying in the market generates capital for the company

On October 15 of last year, ABC Company declared a 3-for-1 reverse split. What are the tax consequences for this corporate action? A) There is none B) Owners will report a short-term gain C) Owners will report a long-term gain D) Owners will report a capital loss

A) there is none There are NO tax consequences for a split, reverse or otherwise

The market price of a company's common stock could be affected by: A) The company's earnings B) Changes in the business cycle C) Federal reserve board (FRB) policies D) International conflicts

All of the above!

Rule 144 limits the amount of shares an affiliate of a company may sell to: A) 5% of the shares outstanding B) 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater C) The average weekly volume of the previous four weeks D) 1% of the shares outstanding or the average weekly volume of trading in the previous eight weeks, whichever is the lesser

B) 1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater

An investor owning 500 shares of MES stock received notice that the stock had undergone a 2:1 forward split when the stock's market price was $10 per share. The investor now owns: A) 1,000 shares worth $10 per share B) 1,000 shares worth $5 per share C) 500 shares worth $20 per share D) 250 shares worth $20 per share

B) 1,000 shares worth $5 per share A forward split increases the number of shares and reduces the price per share.

Shareholders that tender their shares in a tender offer experience which of the following tax consequences? A) There is no effect B) A capital loss occurs if their cost basis is greater than the tender price C) Investment income is received equal to the value increase of the new shares D) A capital gain occurs if their cost basis is greater than the tender offer

B) A capital loss occurs if their cost basis is greater than the tender price Shareholders who tender their shares effectively sell the shares at the tender price ($30) and realize a gain or a loss depending on what their cost was for the shares tendered

In regards to the common stock holder, freely transferrable is best described how? A) A holder of common stock may transfer the shares for value with the transfer agents permission B) A holder of common stock may dispose of the shares in whatever way they choose C) A holder of common stock may transfer the shares with the issuer's permission D) A holder of common shares may transfer the shares for value

B) A holder of common stock may dispose of the shares in whatever way they choose An owner may sell the rights, but they may also choose to simply just give them away; a transfer for value is not required, nor is permission from the issuer. The transfer agent records the ownership change, but need not give permission.

Priority at dissolution for preferred shareholders means that they are paid: (2 answers) A) Before all creditors B) After all creditors C) Before common shareholders D) After common shareholders

B) After all creditors C) Before common shareholders

All of the following are considered control persons (owning control stock) except: A) An officer of the corporation owning less than 1% the outstanding shares B) An unaffiliated shareholder owning 8% of the outstanding shares C) The corporation's CFO owning 1% of the outstanding shares D) A director on the board of directors (BOD) owning 2% of the outstanding shares

B) An unaffiliated shareholder owning 8% of the outstanding shares Because of their positions, directors and officers are considered control persons an any stock they own, no matter how little, is considered control stock. To be considered a control person, an unaffiliated person would have to own 10% or more of the voting (outstanding) shares.

An investor would expect which type of preferred stock to pay the highest stated dividend rate? A) Convertible B) Callable C) Cumulative D) Straight

B) Callable With callable preferred stock, to compensate for the possibility that the shares may be called, the issuer pays a higher dividend than with straight preferred. Cumulative and convertible preferred have positive characteristics that would justify a lower fixed dividend than straight

An investor owns 4% preferred stock participating to 6%. This means the investor: A) Must receive at least 6% each year B) Could receive an additional 2% over the stated 4% dividend if the board declares it C) Could receive an additional 6% over the stated 4% dividend if the board declares it

B) Could receive an additional 2% over the stated 4% dividend if the board declares it If a preferred stock is described as 4% preferred participating to 6%, the company pays its holders up to 2% in additional dividends in profitable years if the BOD declares it.

Preferred shareholders who expect missed dividend payments to be eventually paid are most likely to own: A) Convertible preferred stock B) Cumulative preferred stock C) Callable preferred stock D) Straight preferred stock

B) Cumulative preferred stock Cumulative preferred stock accrues payments due its shareholders that have been missed in the event dividends are reduced or suspended.

The common stock of a U.S. corporation and an ADR issued in the U.S. share all the following risks except: A) Business risk B) Currency risk C) Regulatory risk D) Market risk

B) Currency risk An ADR represents a foreign stock and is subject to currency risk, even if the ADR is issued in the U.S.

Common dividends may be: A) Declared or suspended by the BOD, with increases & reductions decided by the shareholders B) Declared, increased, reduced, or suspended by the BOD C) Declared or increased only by the BOD D) Declared, increased, reduced, or suspended by the shareholders

B) Declared, increased, reduced, or suspended by the BOD

What is the primary benefit for an American investor when purchasing an ADR? A) Hedging currency risk B) Diversification C) Exemption from U.S. taxation D) Tax-deferred dividends

B) Diversification

An ADR is a: A) Foreign security representing a domestic security in U.S. markets B) Domestic security representing a foreign security in U.S. markets C) Domestic security trading in foreign markets D) Foreign security trading in U.S. markets

B) Domestic security representing a foreign security in U.S. markets

Someone who purchases shares of a corporations common stock has: A) No liability & no voting rights B) Limited liability & voting rights C) Neither liability nor voting rights D) Unlimited liability & voting rights

B) Limited liability & voting rights Common stockholders enjoy limited liability in that they can only lose what was invested. They are in no way responsible for any debt of the corporation. Voting rights are one of they key benefits for common shareholders.

Big Co., and NYSE-listed manufacturer, has declared a $0.50 per-share dividend payable next month. Big co. also has options available for trade. The actual ex-dividend date will be declared by: A) The OTC B) The NYSE C) FINRA D) The CBOE

B) NYSE Ex-dates are set by the market center where trades will likely take place.

For this election cycle, BT Inc. has 3 open board seats. BT operates under a cumulative voting system. Your client owns 300 participating shares of BT.He has: A) 900 votes he can divide any way he wants among the 3 seats B) No voting rights C) 300 votes for each of the open seats D) 300 total votes to spread among the 3 open seats

B) No voting rights Your client owns preferred stock which carries no voting rights

Rule 144 covers all of the following transactions except: A) Trades of a newly issued non-registered security B) Non-affiliate trades on an exchange C) Trades by an affiliate on an exchange D) Trades by an affiliate in the OTC market

B) Non-affiliate trades on an exchange Rule 144 imposes volume restrictions on trades by affiliates of a corporation. The rule also restricts the sale of a non-registered security for the 6 months following issue.

Each of the following would be deemed by market regulators as manipulative behavior except: A) Capping B) Proxy solicitation C) Front running D) Marking the open or close

B) Proxy solicitation Proxies are permissible to be solicited. The SEC requires a company to give stockholders info about the items to be voted on and allow the SEC to review this info before it sends the proxies to shareholders

An investor has some stock held in street name and has just received proxy statements from the BD for an upcoming shareholders meeting. If the investor wishes the shares to be voted as recommended by the issuer's management, which must the investor do? A) Inform the BD by letter or phone call how the shares are to be votes B) Sign & return the proxy statements by the 10th day before the meeting C) Sign & return the proxy statements by the 5th day before the meeting D) Nothing in this case

B) Sign & return the proxy statements by the 10th day before the meeting If the shares are to be votes some other way, the investor must specify the changes

Restricted securities may not be sold until they've been held fully paid for: A) One month B) Six months C) Two years D) One year

B) Six months Restricted securities may not be sold until they've been held fully paid for a period of six months. This applied to both affiliates and non-affiliates, but affiliates would be subject to volume restrictions.

Equity is to debt as: A) Stock is to mutual fund B) Stock is to bond C) Stock is to preferred stock D) Hedge fund is to mutual fund

B) Stock is to bond

An investor bought 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of MJS at $50 per share. Which statement is correct? (2 answers) A) The adjusted cost basis of the shares is $30 B) The adjusted cost basis of the shares is $32 C) There is a short-term capital gain on 25 shares and long-term gain on the other 25 shares D) There is a long-term capital gain on all of the shares sold

B) The adjusted cost basis of the shares is $32 D) There is a long-term capital gain on all of the shares sold When a company declares a stock dividend, the cost basis per share is always reduced. The computation is the original total cost ($4,000) divided by the new number of shares. 100x 0.25= 25 additional shares for a total of 125. 4,000/ 125 =32 When any of the shares are sold, including those received in the stock dividend, the holding period for capital gain or loss, is always the original purchase date. In this case, that was more than 12 months ago so any gains are long term.

What rights do owners of ADRs and owners of domestic common stock share? A) The right to convert the underlying asset B) The right to transfer the asset freely C) The right to maintain percentage of ownership D) The right to vote the shares

B) The right to transfer the asset freely Both are freely transferrable assets as securities that trade freely in the secondary markets. Holders of ADRs have the right to request that they receive the underlying stock in place of the ADR. Depositary banks are not required to pass on voting or stock rights through to the holder of the ADR.

Exempt from the penny stock rules are: A) All transactions B) Unsolicited transactions C) Both solicited and unsolicited transactions D) Solicited transactions

B) Unsolicited transactions

A certificate issued by a company granting its owner the right to purchase securities from the issuer at some specified price years into the future is a: A) Rights certificate B) Warrant C) Proxy D) Call option

B) Warrant A rights certificate is a very short-term security that grants the holder the right to buy the common stock of the company at a price lower than the market price. A warrant is a long-term security that grants its owner the right to purchase securities from the issuer at a specified price that is higher than the market price at the time the warrants are issued. The hope is that the exercise price will be below current market value when the warrants are eventually exercised

Which statement about warrants is false? A) The warrant is long term, typically 5 years until expiration B) Warrants are issued as part of a secondary offering of stock to allow existing shareholders to maintain their percentage of ownership C) Warrants are most often issued with bonds as an added incentive to purchase the bond D) The warrant allows the holder to exercise to purchase the underlying stock at a price higher than the market price at the time of the warrant's issue

B) Warrants are issued as part of a secondary offering of stock to allow existing shareholders to maintain their percentage of ownership This is FALSE.

DEF Corporation has 4% cumulative preferred stock outstanding. The corporation eliminated its dividend payments for the past 3 years, but now is in a position again to resume payments. Before paying common shareholders a dividend, they would be required to pay preferred shareholders: A) $1 B) 0 C) $4 D) $2.50

C) $4

An investor owns 200 shares of MNO common stock. The company's management has proposed a 2:1 stock split. If the price of the stock at the time of the split is $50, what would the investor's adjusted position be? A) 400 shares at $100 B) 100 shares at $25 C) 400 shares at $25 D) 100 shares at $200

C) 400 shares at $25 The number of shares doubled to 400 (2x 200= 400) The price per share decreased to $25 ($50/ 2= 25)

Restricted securities may not be sold until they've been held fully paid for: A) 1 month B) 2 years C) 6 months D) 1 year

C) 6 months

Regarding preferred stock, which of the following is false? A) Preferred shareholders are paid before common shareholders in the event of a corporate bankruptcy B) Preferred shareholders have no preemptive rights that precede the preemptive rights of common shareholders C) A corporation issuing common shares must issue at least one class of preferred shares D) The right to vote on corporate issues is not available for preferred shareholders

C) A corporation issuing common shares must issue at least one class of preferred shares False. No corporation must issue any class of preferred stock.

All are true for ADRs except: A) ADRs are U.S. issued securities B) ADRs pay dividends in U.S. dollars C) ADRs are not subject to currency risk D) ADRs represent a foreign security in the domestic market

C) ADRs are not subject to currency risk ADRs are still subject to currency risk, as the underlying security is still a foreign security, and dividends are generated in the foreign currency but converted into U.S. dollars by the depository bank

While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be: A) Participating B) Callable C) Adjustable rate D) Convertible

C) Adjustable rate Because the dividend payment adjusts to current interest rates, the price of the stock remains relatively stable. In other words, it is the return that fluctuates rather than the price.

The maximum number of common shares that may issued is found in the corporation's charter. What are these shares called? A) Treasury shares B) Outstanding shares C) Authorized shares D) Issued shares

C) Authorized shares

Which security would likely provide the greatest potential for capital appreciation? A) Preferred stock B) U.S. Treasury STRIPS C) Common stock D) Corporate bond

C) Common stock Common stocks would be the most suitable for investors seeking capital appreciation (growth). Bonds & preferred stock are better suited for conservative investors because each is primarily an income investment and has limited growth prospects

Which feature of preferred stock allows the holder to reduce the risk of inflation? A) Callable B) Noncumulative C) Convertible D) Cumulative

C) Convertible Fixed-dollar investments, such as bonds and preferred stock, are subject to inflation risk, which is the risk that the fixed interest or dividend payments will be worth less over time in terms pf purchasing power. The ability to convert to common stock, which tends to keep pace with inflation, offsets this risk.

Regarding investment products, which is true? A) Both derivatives and debt represent ownership in an issuing company B) Derivative securities represent ownership in an issuing company C) Equity securities represent ownership in an issuing company D) Debt securities represent ownership in an issuing company

C) Equity securities represent ownership in an issuing company Equity securities represent ownership in an issuing company and debt securities represent a loan to the issuing company. Derivative products, such as options, represent neither.

All these dates are declared by the BOD except: A) Declaration date B) Payable date C) Ex-dividend date D) Record date

C) Ex-dividend date

Each of the following are likely benefits of owning shares of common stock except: A) Dividend payments B) Voting rights C) Interest payments D) Limited liability

C) Interest payments Interest payments are paid to bond holders but not on common stock

Preferred shareholders have: A) Voting rights only B) Both voting and preemptive rights C) No voting or preemptive rights D) Preemptive rights only

C) No voting or preemptive rights

An investor needs to decide whether or not they would like to maintain their percentage of ownership in a company that has decided to increase the number of outstanding shares. Which of the following is the best description of what is taking place? A) Warrants will be distributed to existing stockholders with an exercise price equal to current market value B) Rights will be distributed to existing stockholders; they have 2 options: exercise the rights or let them expire C) Rights will be distributed to existing stockholders with an exercise price lower than the current market value D) Warrants will be distributed to existing stockholders and they have 2 years to decide to buy the stock at strike price

C) Rights will be distributed to existing stockholders with an exercise price lower than the current market value Preemptive rights entitle existing common stockholders to maintain their ownership in shares in a company by buying newly issued shares before the company offers them to the public. They are offered with an exercise price lower than current market value and are issued for 4-6 weeks. Existing shareholders who receive rights have 3 options: they may be exercised, sold in the secondary market, or allowed to expire at the end of their subscription

A company's BOD has voted to divest itself of all shares of a subsidiary to create a new company. This is a type of corporate action best characterized as a: A) Acquisition B) Tender offer C) Spinoff D) Buyback

C) Spinoff A type of divestiture where a parent company sells all of the shares of a subsidiary, or distributes new shares of a company or division it owns to create a new company is known as a spinoff.

Jones bought an ADR in a South Korean company at $22 and sold the shares for $36.88. What are the tax consequences of this transaction? A) The profit is taxed as income in the U.S. B) The profit isn't taxable because ADRs are tax-exempt securities C) The profit is taxed as a capital gain of $14.88 in the U.S D) The profit is taxed as income of $14.88 by the government of South Korea

C) The profit is taxed as a capital gain of $14.88 in the U.S Any trading profits (capital gains) from an ADR would only be taxable in the U.S. A capital gain is the profit realized by buying then selling shares. Remember: dividends paid to a U.S investor may be subject to a withholding tax by the home country of the underlying foreign stock issuer. In many cases, the amount of tax credit withheld by the foreign government is applied as a credit against the investor's U.S. tax liability

Nolan owned 100 shares of LMN stock at $10 per share when the BOD declared a 1:4 split. What will happen to the share price and number of shares? A) Share price will drop to $2.50, and he'll own 400 shares B) Share price goes to $2.50 per share, and he'll own 400 shares C) The share price goes to $40, he'll own 25 shares D) The share price goes to $40, he'll own 100 shares

C) The share price will go to $40 and he will own 25 shares For reverse splits, the price of she share goes up and the number of shares goes down.

Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of the following are true about the position except: A) They will receive dividends in U.S. dollars. B) The security may be traded in U.S. markets. C) They have the same voting rights as an owner of the common stock. D) They have the right to request the underlying common shares be issued to them directly.

C) They have the same voting rights as an owner of the common stock Remember that ADRs are issued by a depository bank and the bank is the registered owner of the shares. Depository banks are not required to pass voting proxies through the ADR holders

A reason that a company based outside of the U.S may encourage the creation of ADRs for their stock is: A) They reduce domestic taxation B) They provide the option to operate under U.S. law C) They offer easier access to U.S. investors D) The ease of operations in the U.S.

C) They offer easier access to U.S. investors

News Inc. trades OTC, and the board declared a $0.25 per share dividend on Tuesday May 6. The dividend will be paid to holders of record of News common stock as of Friday June 23, and will be paid out on Wednesday July 12. What is the most likely ex-dividend date? A) Wednesday June 21 B) Tuesday July 11 C) Thursday June 22 D) Monday July 3

C) Thursday June 22 The ex-date for a corporate dividend is one business day prior to the record date.

BigBox Inc. declared a $0.50 per share dividend on Wednesday September 13. The dividend will be paid to holders of record of BigBox common stock as of Wednesday September 27, and will be delivered to shareholders on Wednesday October 3. What is the declaration date for this dividend? A) Friday September 22 B) Tuesday September 26 C) Wednesday September 13 D) Friday September 15

C) Wednesday September 13 Be careful, sometimes a question is just obvious. This question tells you the declaration date and asks about the declaration date.

DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders: A) $2.50 B) Nothing C) $1.00 D) $4.00

D) $4.00 With noncumulative preferred stock, missed or skipped dividends need not be paid or made up. However, in order to pay common shareholders in any year, preferred shareholders must receive their full dividend for that year. The total in this case is $4 4%x 100= $4

Your client owns 2,200 shares of LMN common stock. LMN issues stock rights related to an additional offer of shares that will increase the company's common shares by 20%. How many rights will your client get? A) 220 B) 440 C) Can't be determined D) 2,200

D) 2,200 rights Shareholders receive one right per share owned

Your client owns 300 shares of BigCo Inc, common stock. If BigCo operated under a statutory voting system, how many votes does the client have? A) 300 votes that may be cast among the seats in any way they choose B) 900 votes, no more than 450 votes per seat C) 900 votes that may be cast among the seats in any way they choose D) 900 votes, not more than 300 votes per seat

D) 900 votes, not more than 300 votes per seat Holders of common stock receive one vote per share owned for each open seat. In a statutory system, they may vote up to the number of shares they own separately for each open seat

Regarding preferred stock, which is false? A) Preferred stockholders have no preemptive rights that precede the preemptive rights of common shareholders B) The right to vote on corporate issues is not available for preferred shareholders C) Preferred shareholders are paid before common shareholders in the event of a corporate bankruptcy D) A corporation issuing common shares must issue at least one class of preferred shares

D) A corporation issuing common shares must issue at least one class of preferred shares

A company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash in what would commonly be known as: A) A hostile takeover B) A buy back C) An acquisition D) A tender offer

D) A tender offer When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders this is known as a tender offer. In contrast, a buyback (sometimes called repurchase), is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors

Which is correct concerning currency risk when investing in an ADR? A) U.S. investors are protected from currency risk by the depositary bank B) U.S. investors are protected from currency risk by the underlying foreign corporation C) Currency risk is eliminated because the securities are dollar denominated D) Currency risk is still a factor when purchasing an ADR

D) Currency risk is still a factor when purchasing an ADR

A company's BOD approves a dividend payment. When this occurs it is recognized as the: A) Ex-dividend date B) Dividend disbursement date C) Record date D) Declaration date

D) Declaration date

A share in the hands of a stockholder represents: A) Neither the entitlement to receive profits through dividends when distributed nor the right to vote for who will serve on the BOD B) No entitlement to receive profits through dividends when distributed but the right to vote for who serves on BOD C) Entitlement to receive profits through dividends when distributed but not the right to vote for who serves on BOD D) Entitlement to receive profits through dividends when distributed and the right to vote for who serves on BOD

D) Entitlement to receive profits through dividends when distributed and the right to vote for who serves on BOD

Big Tech Inc. trades OTC and the board has declared a dividend to be paid to holders of record of Big tech common stock as of Tuesday May 24, and will be paid out on Wednesday June 8. Who will set the ex-dividend date? A) The BOD B) The SEC C) The NYSE D) FINRA

D) FINRA On the basis of the dividend record date, FINRA (or the exchange of the stock is listed on an exchange) declared the ex-date. Bc this stock trades OTC, it is FINRA that will set the date

A customer owns 1,000 shares of stock subject to a 2:3 reverse stock split. The position will now consist of: A) Fewer shares worth less per share with a decreased net position value B) More shares worth more per share with an increased net position value C) More shares worth less per share with the same net position value D) Fewer shares worth more per share with the same net position value

D) Fewer shares worth more per share with the same net position value

Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to: A) Not file form 144 due to the spousal exception B) Not file form 144 because he only owns 3% and is not a control person C) File form 144 because he's a doctor D) File form 144 because he's a control person

D) File form 144 because he's a control person Because married couples aggregate their position, and collectively Mary & John own 11% of the company, John is a control person and needs to file for 144 to sell his shares.

For registered shares held by an affiliate (known as control stock), which of the following applies? A) 6 month holding period, with sales allowed freely thereafter B) No holding period or volume restrictions C) 6 month holding period with volume limits after D) No holding period, but volume limits always apply

D) No holding period, but volume limits always apply Control stock would be registered shares held by an affiliate. There is no holding period, but there will always be volume limits for as long as the individual is an affiliate.

Included under the term 'equity security' would be: A) Collateral trust certificates B) Equipment trust certificates C) Debentures D) Participating preferred

D) Participating preferred Regardless of the adjective used (participating, preferred, convertible), if a term is modifying a preferred stock, it is still an equity security. The other choices are debt instruments

Which is false regarding penny stocks? A) Established customer's of the firm need not sign a suitability agreement B) If an account holds penny stocks, BDs must provide a monthly account statement to the client C) The SEC requires that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure statement D) Penny stock rules apply to both solicited and unsolicited transactions

D) Penny stock rules apply to both solicited and unsolicited transactions The special penny stock tiles only apply to solicited transactions. A signed suitability statement (different than the risk disclosure) isn't required for established customers.

RJN common stock is currently listed on the New York Stock Exchange. Poor operating results over the past several years have led to a sharp decline in RJN's stock price, putting the company at risk for failing to meet the minimum price requirements to remain listed on the NYSE. The corporate action most likely to be taken to preserve the listing would be: A) Stock dividend B) Increasing earnings C) Forward split D) Reverse split

D) Reverse split Reverse splits are a favored way of increasing a company's share price. For example: if the stock has fallen to $2 per share, a 1 for 10 reverse split would immediately increase the stock's price to around $20 per share. Of course, there would be no real change in value to the shareholders because now they would own 1/10ths as many shares with a value 10x per share greater

Which describes rights and warrants? A) Both rights & warrants are long term B) Rights are long term, warrants are short term C) Both rights & warrants are short term D) Rights are short term, warrants are long term

D) Rights are short term, warrants are long term Stock rights last about 4-6 weeks, while warrants are about 2+ years

Which sell transaction is not subject to the holding period restriction from SEC rule 144? A) Stock acquired by a corporate affiliate in the private placement B) Unregistered stock acquired by a non-affiliate under an investment letter C) Unregistered stock acquired by a corporate affiliate in a stock option program D) Stock acquired on the NYSE by a corporate affiliate

D) Stock acquired on the NYSE by a corporate affiliate The holding period rule applies only to unregistered stock, which may or may not be control stock. Unregistered stock results from either private placements or the exercise of a corporate stock option.

A party wishing to solicit proxy authority to vote a particular stockholder's shares must register with: A) FINRA B) the NYSE C) The regional exchange where the stock is traded D) the SEC

D) The SEC

For those owning preferred classes of stocks, priority of asset dissolution refers to: A) The order in which preferred shareholders receive dividend payments & the order in which preferred shareholders are paid in the event of a bankruptcy liquidation B) The order in which the BOD declares dividend payments C) The order in which preferred shareholders receive dividend payments when declared D) The order in which preferred shareholders are paid in the event of a bankruptcy liquidation

D) The order in which preferred shareholders are paid in the event of a bankruptcy liquidation Priority dissolution refers to the priority that preferred shareholders have over the claims of common stockholders on any assets remaining after creditors have been paid when assets are being liquidated

BigCo separates a division (KNDA Big Company) and issues stock for the new division to holders of BigCo stock. What are the tax consequences of this corporate spinoff? A) Long-term capital gain B) Income based on the value of the new shares received C) A long or short-term capital gain depending on how long the shares were held D) There is no taxable consequence

D) There is no taxable consequence This spinoff is not a taxable event. Each new share will have a new cost basis based on a percentage of the original cost basis. There is no taxable event until shares are sold.

Which statement about warrants is false? A) Warrants are most often issued with bonds as an added incentive to purchase the bond B) The warrant allows the holder to exercise to purchase the underlying stock at a price higher than the market price at the time of the warrant's issue C) The warrant is long term, typically 5+ years until expiration D) Warrants are issued as a part of a secondary offering of stock to allow existing shareholders to maintain their percentage of ownership

D) Warrants are issued as a part of a secondary offering of stock to allow existing shareholders to maintain their percentage of ownership That is false!

True or False: There are tax implications at the time of a stock dividend or split

FALSE