Ch1 Checkpoint exam

ABC Corporation declares a 5-4 stock split. On the ex-date, the price of ABC common will be reduced by

0.2 As a result of a stock split, an investor will have more shares at less value per share, but overall value of the investment will remain the same. For example: an investor owns 100 shares at $50 per share worth $5,000. After a 5-4 split, the investor will have 125 shares (100 × 5/4); the total ownership interest of $5,000 is divided by the new number of shares to determine the per share price of $40. The decrease of 50 to 40 is a 20% reduction. Generally, the percent decrease in price will always be less than the percent increase in the number of shares. The percent increase in shares in a 5-4 split is 25%.

ABC Corporation has a 10% noncumulative preferred stock outstanding at $100 par value. Two years ago, ABC omitted its preferred dividend, and last year, it paid a dividend of $5 per share. To pay a dividend to common shareholders, each preferred share must be paid a dividend of

10 Because this is noncumulative preferred stock, the company must pay only this year's full stated dividend of $10 per share before paying dividends to the common shares. ($100 x .10)

Your customer owns 100 shares of DWQ trading at $50 per share. He hears that DWQ has declared a 25% stock dividend and wants to know how that will affect his holdings after the stock dividend is paid. You should advise the customer that based on the current price he will own

125 shares at $40 The number of shares increased by 25%, or 25 shares. Total market value remains the same. To calculate the new market price, divide $5,000 (total market value) by 125 to get the after-dividend price of $40 per share.

Common stockholders of a publicly traded corporation have which of the following rights and privileges? I.Residual claim to assets at dissolution II.Right to a vote for stock dividends to be paid III.Right to receive an audited financial report on an annual basis IV.Claim against dividends in default

I & III

Which of the following statements regarding real estate investment trusts are TRUE? I.Hybrid REITs invest in both commercial property and residential property. II.Some REITs hold no real property but hold mortgages on commercial property instead. III.All dividend disbursements made by REITs will be recognized as qualified dividends by the IRS. IV.Dividends are taxed at the investor's ordinary income tax rate.

II and IV

Which of the following are TRUE of treasury stock? I.Treasury stock is authorized but not yet issued. II.Treasury stock may pay a reduced dividend. III.Treasury stock is issued but has no voting or dividend rights. IV.Treasury stock is previously issued stock that has been repurchased by the issuing company.

III and IV

Which of the following statements regarding the Committee on Uniform Securities Identification Procedures (CUSIP) number is CORRECT?

It facilitates tracking and identification of a security.

In a portfolio containing common stock, preferred stock, convertible preferred stock, and ADRs, changes in interest rates would most likely affect the market price of the

preferred stock Preferred stock has the closest characteristics to bonds and would be most affected by a change in interest rates. Convertible preferred stock would also be affected by price changes in the underlying common stock.

GHI currently has earnings of $4 and pays a $.50 quarterly dividend. If GHI's market price is $40, the current yield is

5%

A corporation authorized to issue 1 million shares of common stock originally issued 600,000 shares and later repurchased 40,000 shares for its treasury. How many shares of common stock will remain outstanding?

560,000

Which of the following is a function of a registrar?

Accounting for the number of shares outstanding

The residual right of common stockholders refers to their right to

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

The board of directors is responsible for setting all of the following EXCEPT

ex dividend date

An ADR represents a

foreign security trading in the U.S. market

A customer owns 200 shares of GHI common stock at $10 per share and 300 shares of GHI preferred Class A stock at par. If GHI declares a 2:1 split for its common shares, how will the customer's preferred Class A shares be adjusted?

no adjustment to preferred stock for stock splits

Callable preferred stock is advantageous to the issuer because it allows the company to

replace a high, fixed-rate issue with a lower issue after the call date By issuing a callable preferred stock, a corporation can call in a high dividend payment issue and replace it with a lower one when interest rates decline. Callable preferred allows the company to take advantage of reduced interest rates by calling in high-rate issues and replacing them with lower ones. The marketplace requires that the company pay a higher dividend yield compared to one that is not callable. This compensates the investor for taking the risk of a future call.

All of the following statements describe warrants EXCEPT

short-term instruments that become worthless after the expiration date

A subscription right or privilege is best defined as

the right of current shareholders to maintain their fractional ownership of a company by buying a proportional number of shares of any future issue of common stock

All of the following are characteristics of a rights offering EXCEPT

the subscription period is up to 2 years (Rights offerings are lower than the CMV)

Which of the following statements about warrants is NOT true?

warrants may not be traded in secondary market