Unit One Checkpoint Exam

The board of directors of DDC omitted dividends in 2016 on their $100 par 6% noncumulative preferred stock. In 2017, a $2 preferred dividend was paid. For DDC, 2018 was a good year, and the board wishes to pay a common dividend. How much must be paid per share on the preferred for 2018 in order to pay a common dividend? A) $12 B) $16 C) $8 D) $6

D) $6

One difference between common stock and preferred stock is that common stockholders A) own equity in the company. B) have a priority claim on earnings. C) have voting rights. D) receive dividends when declared by the board of directors.

C) have voting rights.

KAPCO common stock is listed on the New York Stock Exchange, Inc. (NYSE). If an executive vice president of the company buys 400 shares of the company's stock on the NYSE, she A) may sell immediately without restriction. B) may sell under Rule 144 only after a six-month holding period. C) may not sell until she leaves the company. D) may sell immediately subject to Rule 144 volume limitations.

D) may sell immediately subject to Rule 144 volume limitations.

Which of the following statements regarding nonqualified stock options (NQSOs) is correct? A) The NQSO is taxable to the recipient at the time of exercise to the extent of the difference between the fair market value of the stock and the exercise price. B) The NQSO is taxable to the recipient at the time of grant to the extent of the difference between the fair market value of the stock and the grant price. C) Unlike incentive stock options, NQSOs are publicly traded. D) The exercise of NQSOs does not create taxable income.

A) The NQSO is taxable to the recipient at the time of exercise to the extent of the difference between the fair market value of the stock and the exercise price.

The issuer of an ADR is A) a U.S. depositary bank. B) the exchange on which the ADR is traded. C) a foreign branch of a foreign bank. D) a domestic branch of a foreign bank.

A) a U.S. depositary bank

When comparing restricted stock to nonrestricted stock, it is important to note that the restricted stock has a restriction placed upon its A) priority in liquidation. B) resale. C) receipt of dividends. D) voting rights.

B) resale.

A common stockholder's rights include all of the following except A) preemptive rights. B) the right to determine the par value of the stock. C) electing the board of directors. D) the receipt of dividends if declared by the board of directors

B) the right to determine the par value of the stock.

Investing in an emerging market mutual fund subjects the investor to all of the following risks except A) currency fluctuations. B) political instability. C) liquidity. D) market volatility.

C) liquidity.

The residual right of common shareholders refers to their right to A) vote in elections for the board of directors and in other important business decisions, such as changes to the charter. B) claim company assets in bankruptcy after wages, taxes, creditors, and preferred shareholders have been paid. C) receive all announced dividends in accordance with the number of shares held. D) examine the corporation's annual reports and other reports, and take legal action if irregularities are found.

B) claim company assets in bankruptcy after wages, taxes, creditors, and preferred shareholders have been paid

For a profitable and rapidly growing firm, holders of preference shares are least likely to benefit from the firm's growth if the preference shares are A) convertible. B) cumulative. C) participating. D) common.

B) cumulative.

In a portfolio containing common stock, straight preferred stock, convertible preferred stock, and adjustable-rate preferred stock, changes in interest rates would be most likely to affect the market price of the A) convertible preferred stock. B) straight preferred stock. C) adjustable-rate preferred stock. D) common stock.

B) straight preferred stock.

Ownership in a corporation is evidenced by holding shares of the company's A) warrants. B) bonds with a first mortgage on the property. C) common or preferred stock. D) common stock only.

C) common or preferred stock.

One characteristic found in equity securities issued by a corporation is A) preemptive rights. B) cumulative dividends. C) limited liability. D) a history of keeping pace with inflation.

C) limited liability.

An ADR is used to A) reduce currency risk when investing in foreign securities. B) facilitate trading in foreign securities in U.S. markets by U.S. citizens living in the United States. C) finance foreign trade in which U.S. citizens are engaged. D) facilitate trading in U.S. securities in foreign markets by U.S. citizens living abroad.

B) facilitate trading in foreign securities in U.S. markets by U.S. citizens living in the United States.