SIE

In terms of common stock and the securities industry, which of the following BEST describes the term "proxy"?

[A]A document allowing discretionary trading in a customer's account [B]An authorization related to voting privileges allowing absentee voting for shareholders or voting on behalf of shareholders by a broker-dealer firm [C]An introducing broker that does not have clearing capabilities, so the firm clears all transactions through another firm called a clearing firm [D]An abbreviated word used to describe a quotation that is approximate or is not "firm" The term "proxy" in relation to common stock and the securities industry is typically used in reference to voting privileges. When a shareholder does not attend an annual shareholders meeting, the shareholder can typically vote by proxy, a form of absentee voting. Proxy is also used to describe a power of attorney that shareholders can give to their broker-dealer firm in relation to voting on behalf of the shareholders when it comes to important matters such as the board of directors of a corporation, stock splits, etc. A discretionary authorization would be what allows discretionary trading in a customer's account. Proxy is not used in relation to introducing and clearing firms. Quotes that are not firm are not labelled as "proxy" but would be referred to as "subject" quotes.

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 "Ownership" of a company is expressed as equity in the company. Common and preferred stock are both forms of equity ownership in a company. Holders of bonds and debentures are considered debtors or lenders to the company, rather than owners.

Which of the following features on preferred stock allows investors to receive unpaid dividends prior to the payment of dividends to common stock shareholders?

[A]A participation feature [B]A conversion feature [C]A call feature [D]A cumulative feature Though dividends on preferred stocks are still voluntary on behalf of the corporation, the fixed dividend rate on preferred stocks is generally assumed to be paid in a fixed and regular manner similar to interest on a bond. With a cumulative feature, any dividends that have not yet been paid for a given quarter or multiple quarters must be paid to the holder of cumulative preferred stock prior to the company paying dividends on common stock. Participation features allow an investor to participate in additional earnings if the company's earnings exceed expectations. Conversion features allow investors to elect to convert their preferred stock to common stock. Call features allow the issuer of the preferred stock to "call in" the stock if the issuer finds that it would be beneficial in terms of dividend rate or addition/removal of features on a preferred stock issue.

ABC Corporation has 2,000,000 shares of common stock outstanding and decides to issue 500,000 new shares in order to raise capital. The Corporate Charter includes a Preemptive Rights Clause. Assuming that ABC Corporation also has 10,000,000 shares of common stock authorized and 1,000,000 treasury shares, which of the following statements is correct?

[A]ABC could choose to offer the new shares directly to the public. [B]10,000,000 rights will be issued by ABC Corporation. [C]An investor that owns 200 shares could subscribe to 50 shares of the new issue. [D]The 1,000,000 treasury shares would participate in the Rights Offering. We know we have a rights offering because it says, "the corporate charter included a preemptive rights clause." If you take the 2,000,000 outstanding shares divided by the 500,000 new shares, you determine that this is a 4:1 Rights Offering. In answer C says we have 200 shares of stock. If you have 200 shares, this means you have 200 rights. So you take the number of shares owned or the number or rights and divide it by the ratio. 200 / 4 = 50. Therefore, if you have 200 shares of stock, you will be able to subscribe to 50 additional shares of the new issue.

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 REITs receive special tax treatment because of requirements associated with investing in real estate as well as passing through the majority of income. Though they do pass through profits and earnings to investors, REITs do NOT pass through losses. This is one key differentiation between REITs and limited partnerships (DPPs).

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. Limited partnerships are illiquid investments that have come under close scrutiny from the IRS because of abuse of the tax-shelter advantage. Limited partners are only subject to limited liability, which differs from full participation in all liabilities incurred by the general partner(s). Only general partners are subject to unlimited liability.

All of the following are TRUE about the types or kinds of preferred stock EXCEPT:

[A]Participating where shares may receive a dividend higher than the fixed dividend if the company's profits are larger than expected [B]Cumulative where shares accumulate dividends that were skipped in past years [C]Callable where shares may be redeemed by the company at a stated discount from par on certain dates [D]Convertible where shares may be exchanged for shares of common stock at the option of the shareholder Callable shares are redeemed at a premium above par, not a discount from par.

An investor that has received rights through a Pre-emptive Rights Offering could do all of the following with the rights 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 Rights may be exercised, sold, or allowed to expire but may not be redeemed for cash.

REITs can pass through all of the following to investors except:

[A]dividends [B]capital losses [C]capital gains [D]interest Since REITs trade like a corporate security, there is no pass through of losses; losses are treated as capital losses.

Mortgage Real Estate Investment Trusts generally invest in which of the following?

[A]properties handled by developer or builders [B]income producing properties [C]residential mortgage loans [D]oil and gas properties Mortgage Real Estate Investment Trusts lend money to builders and developers and then pass the income on to shareholders.

Common stock shareholders have all of the following rights EXCEPT:

[A]vote for directors [B]vote for officers [C]sell or give away his/her shares [D]receive declared dividends Officers are elected or appointed by the Board of Directors, not the shareholders.

All of the following statements with regard to warrants on common stock are true EXCEPT:

[A]when they are issued they have intrinsic value [B]when they are issued they do not have intrinsic value [C]the value of the warrant is directly related to the market value of the common stock [D]the performance of the company will impact the value of the warrants When they are first issued, warrants do not have any intrinsic value because generally the stock value is lower than the exercise price of the warrant. As time passes if the value of the stock increases the warrants will then have intrinsic value if the value of the stock is higher than the exercise price of the warrant.