UNIT 1 Individual Securities

Under the rules, a penny stock is defined as an unlisted, security trading at less than A) $5 per share. B) $1 per share. C) $2 per share on three consecutive days. D) $2.50 per share on three consecutive days.

A) $5 per share.

An investor looking to speculate in penny stocks would be exempt from the suitability statement requirement under which of the following circumstances? A) The investor is an established customer. B) The investor is already exempt from the risk disclosure requirements. C) The investor's account is approved for margin purchases. D) The investor has already received the risk disclosure statement.

A) The investor is an established customer.

Which of the following best describes the trade execution of American depository receipts (ADRs)? A) Trades are executed domestically in U.S. dollars. B) Trades are executed overseas in U.S dollars. C) Trades are executed overseas in a foreign currency. D) Trades are executed domestically in a foreign currency.

A) Trades are executed domestically in U.S. dollars.

All of the following could be characterized as benefits to owning common stock except A) low dissolution priority. B) capital gains via increases in share price. C) limited liability. D) income potential via the receipt of dividends.

A) low dissolution priority.

Preferred shareholders have A) no voting or preemptive rights. B) preemptive rights only. C) both voting and preemptive rights. D) voting rights only.

A) no voting or preemptive rights.

All of the following statements regarding penny stocks are true except A) penny stock rules apply to both solicited and unsolicited transactions. B) the SEC rules require that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure document. C) if an account holds penny stocks, broker/dealers must provide a monthly account statement to the customer. D) established customers of the firm need not sign a suitability statement.

A) penny stock rules apply to both solicited and unsolicited transactions.

The rate on an adjustable preferred stock would most likely be indexed to A) the Treasury bill (T-bill) rate. B) the Producer Price Index (PPI). C) the Dow Jones Industrial Average (DJIA). D) the Consumer Price Index (CPI).

A) the Treasury bill (T-bill) rate.

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 a 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) call. C) follow-on offering. D) stock right.

A) warrant.

Equity is to debt as A) stock is to bond. B) stock is to preferred stock. C) stock is to mutual fund. D) hedge fund is to mutual fund.

A) stock is to bond.

In 2011, RST Corp. had both common stock and $100 par value 4% noncumulative preferred stock, outstanding. The preferred stock, like the common stock, pays dividends on a quarterly basis. Because of financial difficulties, the company stopped paying dividends after 2011. After resolving its problems in 2015, the company resumed dividend payments in 2016. Before paying the first quarterly common stock dividend that year, the company would have to pay a quarterly dividend to the preferred stockholders of A) $4.00. B) $1.00. C) $17.00. D) $20.00.

B) $1.00. In the case of a noncumulative preferred stock, skipped dividends are forever lost

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

B) Callable

List the dates associated with dividend payment in their proper order. A) Record date, declaration date, ex-dividend date, pay date B) Declaration date, ex-dividend date, record date, pay date C) Declaration date, record date, ex-dividend date, pay date D) Declaration date, pay date, ex-dividend date, record date

B) Declaration date, ex-dividend date, record date, pay date

Which of the following is an example of an equity security? A) Debentures B) Preferred shares C) Equipment trust certificates D) Mortgage bonds

B) Preferred shares

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 and they will have two to five years to decide whether or not to buy the stock at the strike price. B) Rights will be distributed to existing stockholders with an exercise price lower than the current market value. C) Rights will be distributed to existing stockholders; they have only two options: exercise the rights or let them expire. D) Warrants will be distributed to existing stockholders with an exercise price equal to the current market value.

B) Rights will be distributed to existing stockholders with an exercise price lower than the current market value.

All of the following are considered control persons (owning control stock) except A) a director on the board of directors (BOD) owning 2% of 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) an officer of the corporation owning less than 1% the outstanding shares.

B) an unaffiliated shareholder owning 8% of the outstanding shares.

An investor owns 3% preferred stock participating to 6%. This means the investor A) must receive at least 6% each year. B) could receive an additional 3% over the stated 3% dividend if the board declares it. C) must receive a total of 9% in any year the board declares the 6% participating be paid. D) could receive an additional 6% over the stated 3% dividend.

B) could receive an additional 3% over the stated 3% dividend if the board declares it.

MJS Corporation has called in its 6% preferred shares. Owners of these shares should expect that A) the shares will be resold to new investors. B) dividend payments will cease on the call date. C) dividend payments will continue until the owner chooses to turn in the shares. D) the shares will continue to trade in the open market.

B) dividend payments will cease on the call date.

Another term for stocks and bonds is A) voting and nonvoting. B) equity and debt. C) shares and units. D) taxable and tax-free.

B) equity and debt.

All of the following are possible actions of an investor who has received stock rights except A) exercise the rights to purchase the new stock at a discount. B) hold the rights for a possible long-term capital gain. C) allow the rights to expire unexercised. D) sell the rights for a short-term capital gain or loss.

B) hold the rights for a possible long-term capital gain.

The growth potential in the price of preferred shares is generally considered to be A) unrelated to the financial well-being of the issuer. B) less than that of the issuer's common shares. C) no different than that of the issuer's common shares. D) greater than that of the issuer's common shares.

B) less than that of the issuer's common shares.

For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has A) 300 votes each for the open seats. B) no voting rights. C) 900 votes he can divide anyway he wants among the three seats. D) 300 votes total to spread among the three open seats.

B) no voting rights PS no voting rights

The rate on an adjustable preferred stock would most likely be indexed to A) the Producer Price Index (PPI). B) the Treasury bill (T-bill) rate. C) the Dow Jones Industrial Average (DJIA). D) the Consumer Price Index (CPI).

B) the Treasury bill (T-bill) rate.

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

B) they have the same voting rights as an owner of the common stock.

If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that A) the shares had increased by 3.5% each year. B) this is a 3.5% preferred class. C) the common shareholders receive the same $3.50 annual dividend. D) these shares are trading at $35.00.

B) this is a 3.5% preferred class.

Your customer, MJ, 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 the least suitable for her? A) BuyMore, Inc., a big-box retailer with a long history of healthy dividend payments B) Duratech common stock, an exciting new tech manufacturer C) Long Beach Electric, a utility D) Generic Motors, Inc., 4 ¾ % preferred stock

B) Duratech common stock, an exciting new tech manufacturer

Included under the term, equity security, would be A) debentures. B) participating preferred. C) collateral trust certificates. D) equipment trust certificates.

B) participating preferred.

MAS Corporation has enjoyed an extremely profitable year. It has been determined that those owning the MAS 4% preferred, participating to 6% preferred shares, will receive the full participating dividend. The participating shareholders will receive an additional dividend of A) 10%. B) 4%. C) 2%. D) 6%.

C) 2%.

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

C) A common stock

Which of the following securities provides U.S. investors with a way to gain exposure to the common stock of a foreign issuer? A) STRIP B) GNMA C) ADR D) CMO

C) ADR

Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer? A) Open cash account for six months or more B) Signed transaction agreement C) At least three separate penny stock purchases D) Signed risk disclosure statement

C) At least three separate penny stock purchases

A shareholder feels strongly about some of the issues to be voted on at the next shareholder meeting but is unable to attend. Which of the following is true? A) The shareholder will need to attend in person in order to vote. B) The shareholder must relinquish the right to vote at this meeting. C) The shareholder can vote by proxy. D) The shareholder must deliver the vote in person but can do so before the date of the meeting.

C) The shareholder can vote by proxy.

What is the tax status of a dividend paid to a U.S.-based American depository receipts (ADR) investor? A) These dividends are tax deferred. B) These dividends are tax free. C) These dividends may be taxed by both the foreign country and the United States. D) These dividends are only taxable to foreign buyers.

C) These dividends may be taxed by both the foreign country and the United States.

All of the following are considered securities except A) Treasury bonds. B) 15 British pound put contracts. C) U.S. minted gold coins. D) common stock of XYZ corporation.

C) U.S. minted gold coins.

In the dividend disbursement process three of the four critical dates are determined by the board of directors (BOD) but one is determined by either Financial Industry Regulatory Authority (FINRA) for OTC stocks or the exchange for listed stocks. Which one is it? A) payable B) declaration C) ex-dividend D) record

C) ex-dividend

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) file Form 144 because he is a doctor. B) not file Form 144 because only owns 3% and is not a control person. C) file Form 144 because he is a control person. D) not file Form 144 due to the spousal exception.

C) file Form 144 because he is a control person.

Someone who purchases shares of a corporation's common stock has A) unlimited liability and voting rights. B) no liability and no voting rights. C) limited liability and voting rights. D) neither liability nor voting rights.

C) limited liability and voting rights.

Big Company, Inc., an NYSE listed manufacturer of large objects, has declared a 50-cent-per-share-dividend payable next month. Big Company also has options available for trade. The actual ex-dividend date will be declared by A) FINRA. B) the CBOE. C) the NYSE. D) the OTC.

C) the NYSE.

During times when interest rates are rising, which of the following preferred are likely to pay a higher annual dividend? A) Convertible B) Participating C) Callable D) Adjustable rate

D) Adjustable rate

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

D) Changing the corporation's name

Under Rule 144, which of these sales are subject to volume limitations on the number of shares sold? I. Control person selling registered stock held for 1 year II. Control person selling restricted stock held for 2 years III. Nonaffiliate selling registered stock held for 1 month IV. Nonaffiliate selling restricted stock held for more than 6 months

D) I and II

Different categories of preferred shares offered by an issuer A) must all be callable shares. B) must all be convertible shares. C) all must have the same fixed dividend rate. D) all have preference over the issuer's common shares.

D) all have preference over the issuer's common shares.

A preferred shareholder's priority claim on assets is the preferred shareholder's priority standing over A) bondholders. B) creditors of the corporation. C) employees of the corporation. D) common shareholders.

D) common shareholders.

An example of a fixed-income security would include all of the following except A) preferred stock that has historically paid dividends. B) a municipal bond that has historically made late interest payments. C) a money market instrument that has historically made timely interest payments. D) common stock that has historically paid dividends.

D) common stock that has historically paid dividends.

An american depository receipt is a A) foreign security representing a domestic security in foreign markets. B) domestic security trading in foreign markets. C) foreign security trading in U.S. markets. D) domestic security representing a foreign security in U.S. markets.

D) domestic security representing a foreign security in U.S. markets.

All of these dates are declared by the board of directors of a corporation except the A) payable date. B) declaration date. C) record date. D) ex-dividend date.

D) ex-dividend date.

Someone who purchases shares of a corporation's common stock has A) no liability and no voting rights. B) neither liability nor voting rights. C) unlimited liability and voting rights. D) limited liability and voting rights.

D) limited liability and voting rights.

American Liquidators Corporation (the ticker is LQDT) has 100 million outstanding common shares. The company would like to raise capital by 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) suggest that existing shareholders go to the market and double their existing position. B) perform a stock split. C) offer warrants to existing shareholders. D) offer stock rights to existing shareholders.

D) offer stock rights to existing shareholders.

A customer investing in common equity securities could realize all of the following except A) potential hedge against inflation. B) current income via dividend declarations. C) potential capital appreciation. D) protection of principal investment.

D) protection of principal investment.

The United States Supreme Court decision that provided our current definition of a security is A) Hawkins v. Florida B) County of San Francisco v. State of California C) SEC v. Lorenzo D) SEC v. Howey

D) SEC v. Howey