Chapter 1: Equity Securities

Question #29 of 110Question ID: 604731 A company may pay dividends in which of the following forms? Preemptive rights. Cash. Its own stock. Its own bonds. A)II and III. B)II and IV. C)I and IV. D)I and III.

A A company may pay a dividend in stock of another company, cash, its own stock, or its own product. Preemptive rights are used in subsequent primary offerings, and bonds trade separately. Reference: 1.4.1 in the License Exam

Question #44 of 110Question ID: 604681 If ABC Corp. declares a 5-4 stock split, an investor who owns 300 shares would receive how many additional shares? A)75. B)60. C)100. D)30.

A A 5-4 split represents a 25% increase in shares. For each 4 shares owned, the investor will receive 1 new share. 1/4 = 25% increase. 300 shares × 25% = 75 shares. Reference: 1.2.4.1 in the License Exam

Question #78 of 110Question ID: 604745 The ex-date for NYSE-listed issues is set by: A)the NYSE. B)FINRA. C)the SEC. D)the issuer.

A The ex-date is set by the market where the security principally trades. Reference: 1.6.3.2.2 in the License Exam

Question #75 of 110Question ID: 785989 The last day that stocks can be bought for cash and still receive the dividend is A)the day after the record date B)the record date C)on the ex-date D)the business day prior to the regular way ex-date

B A cash trade settles the same day. Stocks bought for cash on the record date will be entitled to the dividend. Reference: 1.6.1.5 in the License Exam

Question #23 of 110Question ID: 604776 Which of the following terms or phrases does NOT apply to REITs? A)Dividends taxed at full ordinary income rates. B)Redeemable. C)Managed. D)Secondary market.

B REITs trade in the secondary market and are not redeemable. The real estate portfolio is actively managed, and dividends paid by REITs do not meet the requirements to be taxed as qualified dividends and are, therefore, taxed as ordinary income. Reference: 1.9 in the License Exam

Question #8 of 110Question ID: 604720 A company that has issued cumulative preferred stock: A)pays the preferred dividend before paying the coupons due on its outstanding bonds. B)pays past and current preferred dividends before paying dividends on common stock. C)pays the current dividends on the preferred, but not the past dividends on the preferred, before paying a dividend on the common. D)forces conversion of the preferred that is trading at a discount to par, thereby eliminating the need to pay past-due dividends.

B) Current and unpaid past dividends on cumulative preferred stock must be paid before common stockholders can receive a dividend. Bond interest is always paid before dividends. Dividends in arrears on cumulative preferred have the highest priority of dividends to be paid. Reference: 1.3.2.2 in the License Exam

Question #50 of 110Question ID: 604775 Which of the following is an equity security? A)Collateralized mortgage obligation. B)Government National Mortgage Association pass-through certificate. C)Real estate investment trust share. D)Mortgage-secured bond.

C A REIT share is an equity security that represents undivided ownership in a portfolio of real estate investments. The other choices are debt securities. Reference: 1.9 in the License Exam

Question #100 of 110Question ID: 604712 In general, a corporation assumes the least risk when it obtains funds from: A)a commercial bank. B)sale of debentures. C)sale of preferred stock. D)sale of income bonds.

C Unlike the other choices, the sale of preferred stock does not entail the assumption of debt and is therefore the least risky. It is always riskier to borrow than it is to raise equity because equity does not have to be paid back. Reference: 1.3.1.4 in the License Exam

Question #69 of 110Question ID: 604777 Cash dividends from REITs are: A)not taxed. B)taxed at a maximum rate for qualified dividends. C)taxed as long-term capital gains. D)taxed as ordinary income.

D Cash dividends from REITs are taxed as ordinary income. A maximum rate for qualified dividends, which applies to qualified common stock dividends, does not apply to dividends from REITs. Reference: 1.9 in the License Exam

Question #59 of 110Question ID: 604726 GHI stock is at $10 par value and is selling in the market for $60 per share. If the current quarterly dividend is $1, the current yield is: A)1.7%. B)10%. C)1%. D)6.7%.

D Current yield is determined by dividing the annual dividend of $4 ($1 per quarter × 4 = $4) by the current stock price of $60 ($4 / $60 = 6.7%). Reference: 1.4.1.3 in the License Exam

Question #98 of 110Question ID: 604684 A company has reverse-split its common stock. The effect on the earnings per share will be: A)none of these.. B)no effect. C)a decrease. D)an increase.

D When a reverse split takes place, the number of outstanding shares is reduced. Since the split has no effect on earnings of the company, dividing those earnings by fewer shares will cause an increase to the earnings per share. Reference: 1.2.4.2 in the License Exam

Question #2 of 110Question ID: 604755 If a corporation attaches warrants to a new issue of debt securities, which of the following would be a resulting benefit to the corporation? A)Dilution of shareholders' equity. B)Reduction of the number of shares outstanding. C)Increase in earnings per share. D)Reduction of the debt securities' interest rate.

D) Usually, a warrant is issued along with a debt instrument, an enhancement that allows the issuer to offer a slightly lower rate of interest. Reference: 1.7.2 in the License Exam

Question #108 of 110Question ID: 604691 Treasury stock is: A)stock repurchased by the issuer. B)preferred stock. C)authorized but unissued stock owned by the company. D)issued by the U.S. Treasury Department.

A A company may, from time to time, go into the market and buy some of its own outstanding stock, which is then placed in the treasury and called treasury stock. Treasury stock has no voting rights and does not receive dividends. Treasury stock is not included when calculating shareholders' equity, or net worth. Reference: 1.2.1.4 in the License Exam

Question #105 of 110Question ID: 604766 Which of the following is an advantage of owning American depositary receipts? A)The investor can buy, sell, and receive dividends in U.S. dollars rather than a foreign currency. B)The investor receives preemptive rights should the issuer make an additional stock offering. C)The investor avoids the currency risk that characterizes many foreign investments. D)The investor has the right to vote at stockholders' meetings.

A ADRs permit an American investor to purchase, not stock, but a certificate of deposit for stock in a foreign company. The advantage is that the transactions are done in dollars, but the ADR itself does not carry a vote or stock rights, and subjects the owner to currency risk. Reference: 1.8.1.4 in the License Exam

Question #109 of 110Question ID: 604758 A new bond issue will include warrants to: A)increase the attractiveness of the issue to the public. B)increase the capital raised by the issuer through the bond offering. C)increase the price of the issue to the public. D)increase the spread to the underwriter.

A By including warrants with debt issues, issuers increase the marketability of bonds. The warrants offer a long-term opportunity to buy the underlying stock at a fixed price. In addition to increasing the marketability of the issue, the issuer can offer the bonds with a lower coupon rate and, as a result, reduce fixed costs. Reference: 1.7.2.1 in the License Exam

Question #4 of 110Question ID: 901824 A sophisticated investor wants to purchase stock of a foreign company or an American depositary receipt representing the shares of that company. The purchase would align with the investor's goal of growth and income, but he makes several statements about the potential purchase and only one of them is accurate. You feel it is important to point out and discuss from a suitability perspective which statements were not, and which one was accurate. The accurate statement was A)the purchase of American depositary receipts representing the shares exposes me to currency risk B)I can trade the foreign shares right here on U.S. exchanges C)with the ADRs, I'll have voting rights just like I would if I purchased the shares directly D)the direct purchase of the foreign stock shares eliminates currency risk

A) From a suitability perspective, correcting any inaccuracies about an investment that an investor might have is important. Currency risk cannot be avoided when investing in foreign companies either directly or using ADRs. While ADRs trade on U.S. exchanges, foreign shares do not, and ADR issuers generally do not pass on voting rights to the ADR holders. Reference: 1.8.1.3 in the License Exam

Question #104 of 110Question ID: 604770 ADRs are used to facilitate the: A)foreign trading of domestic securities. B)domestic trading of foreign securities. C)domestic trading of U.S. government securities. D)foreign trading of U.S. government securities.

B An ADR is a negotiable security that represents an ownership interest in a non-U.S. company. Because they trade in the U.S. marketplace, ADRs allow investors convenient access to foreign securities. Reference: 1.8 in the License Exam

Question #102 of 110Question ID: 604716 As interest rates fall, prices of straight preferred stock will: A)fall. B)rise. C)become volatile. D)remain unaffected.

B Preferred stock is interest rate sensitive. As rates fall, prices of preferred stocks tend to rise, and vice versa. Reference: 1.3.2.1 in the License Exam

Question #101 of 110Question ID: 604782 If a customer holds certificates of beneficial interest in a REIT, each of the following statements regarding this investment is true EXCEPT: A)investors receive dividends periodically. B)the issuer must redeem certificates on shareholder request. C)a mortgage REIT represents pooled capital for real estate financing. D)the certificates are publicly traded.

B REITs are not redeemed by the issuer. REITS are publicly traded units that represent either an interest in pooled capital for real estate financing or an interest in real property and that pass through income and capital gains distributions to investors. Investors who wish to liquidate their interests must sell them in the secondary market. Reference: 1.9 in the License Exam

Question #110 of 110Question ID: 604688 Which of the following is TRUE concerning a 5:4 stock split? A)The par value will be unchanged. B)Each shareholder's proportionate equity will be unchanged. C)The net worth of the company will be reduced. D)Retained earnings will be increased.

B Since each shareholder will receive additional stock, the proportional equity will remain the same. Reference: 1.2.4.1 in the License Exam

Question #15 of 110Question ID: 721382 Holders of common shares may generally vote on: A)whether a cash dividend is to be declared. B)whether the company should issue additional preferred stock. C)whether an administrative assistant should be promoted to management. D)which member of the board of directors should be chairman.

B) Common shareholders must vote to approve the issuance of additional preferred stock because additional preferred shares dilute the common shares' residual assets under a liquidation. Common shareholders do not vote to declare dividends. Board members select the chairman of the board. Shareholders do not get involved in the daily operational activity of the corporation. Reference: 1.2.3.1 in the License Exam

Question #22 of 110Question ID: 604778 REITs can distribute all of the following to their shareholders EXCEPT: A)cash dividends. B)stock dividends. C)capital losses. D)capital gains.

C REITs can distribute their income to shareholders but not their losses. Under subchapter M of the Internal Revenue Code, they must distribute at least 90% of their income to shareholders in the form of cash dividends. Reference: 1.9 in the License Exam

Question #107 of 110Question ID: 785991 ABC Corporation has declared a record date of Thursday, May 17, for its next quarterly cash dividend. When is the last day the investor may purchase the stock regular way and receive the dividend? A)Wednesday, May 16 B)Thursday, May 17 C)Tuesday, May 15 D)Monday, May 14

C In order to receive a cash dividend, an investor must be owner of record as of the close of business on record date. Because regular way settlement is 2 business days, the customer must purchase the stock no later than Tuesday, May 15. Reference: 1.6.1.5 in the License Exam

Question #103 of 110Question ID: 879514 GC, Inc., is proposing an additional public offering of common stock. It conducts a rights offering to its current shareholders at $55 per share, plus 5 rights. If the market price of GCI is $70 after the ex-rights date passes, what is the value of 1 right? A)15. B)2.5. C)3. D)5.

C Since the stock is selling ex (after ex-rights), the formula is ($70 − $55) / 5. ($70 − $55 = $15) ($15 / 5 = $3). Reference: 1.7.1.3 in the License Exam

Question #9 of 110Question ID: 604747 A company is offering investors the opportunity to purchase shares for the next 5 years at a fixed price slightly above today's market price. The company is issuing: A)call options. B)a letter of intent. C)warrants. D)futures.

C) A warrant is a security that allows the holder to purchase shares of the underlying issue at a fixed price (above the current market price when issued) for an extended period (typically 2 years or longer). Call options are similar, except they are short-term securities (9 months at issue). Reference: 1.7.2 in the License Exam

Question #10 of 110Question ID: 604710 If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate? A)Convertible. B)Cumulative. C)Callable. D)Straight.

C) When the stock is called, dividend payments are no longer made. With callable preferred stock, to compensate for that possibility, 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. Reference: 1.3.2.5 in the License Exam

Question #11 of 110Question ID: 604783 Which of the following characteristics are applicable to real estate investment trusts (REITs)? A)REIT shares cannot be bought or sold in the secondary market and are, therefore, considered illiquid. B)REITs have guaranteed minimum dividends. C)Dividends from REITS are taxed as ordinary income. D)Any losses from the real estate portfolio flow through to the REIT shareholders.

C) While income flows through to REIT shareholders in the form of dividends, losses do not flow through. When a REIT pays a dividend, it will be taxed as ordinary income, but there are no guaranteed minimum dividend payouts. They trade both on exchanges and OTC and are, therefore, considered to be liquid investments. Reference: 1.9.1 in the License Exam

Question #63 of 110Question ID: 604774 A company set up to invest in real estate, mortgages, construction, and development loans that must distribute at least 90% of its net income to avoid paying taxes on the income distributed is called: A)a trust indenture. B)an open-end investment company. C)a unit investment trust. D)a real estate investment trust.

D A real estate investment trust, in order to avoid tax on its income, must distribute 90% of its net investment income to investors. Reference: 1.9 in the License Exam

Question #25 of 110Question ID: 604729 A company's dividend on its common stock is: A)mandatory if the company is profitable. B)specified in the company charter. C)voted on by shareholders. D)determined by its board of directors.

D A common stock's dividend payment and amount are determined by the company's board of directors. Reference: 1.4.1 in the License Exam

Question #106 of 110Question ID: 604764 An ADR is used to: A)sweeten a bond offering. B)finance foreign trade in which U.S. citizens are engaged. C)facilitate trading U.S. securities in foreign markets by U.S. citizens living abroad. D)facilitate trading foreign securities in U.S. markets by U.S. citizens living in the United States.

D American depositary receipts (ADRs) make trading in foreign securities easier in U.S. markets for U.S. investors. Reference: 1.8 in the License Exam

Question #7 of 110Question ID: 604711 A similarity between common and preferred stock is: A)they have an equal vote. B)both are evidence of corporate indebtedness. C)the dividend is fixed. D)the dividend must be declared by the board of directors.

D) All dividends, both common and preferred, must be declared by the board of directors. Preferred shares usually have a fixed dividend rate and usually have no (or very limited) voting powers. Both types of stock are equity, not debt, securities. Reference: 1.3.1.1 in the License Exam

Question #12 of 110Question ID: 604763 Dividends may be paid to holders of: A)treasury stock. B)warrants. C)rights. D)American depositary receipts.

D) American depositary receipt (ADR) owners have most of the rights common stockholders normally hold. One of these includes the right to receive dividends when declared. Rights and warrants allow holders to purchase stock from a corporation and treasury stock is stock that has been issued by the corporation and then bought back. Neither rights, warrants or treasury stock holders have the right to receive dividends. Reference: 1.8.1.2 in the License Exam

Question #1 of 110Question ID: 604708 Which of the following securities carries the greatest amount of risk? A)Preferred stock. B)Debentures. C)Corporate bonds. D)Common stock.

D) Common stockholders are always the last to receive payment in the event of a corporate liquidation and, therefore, have the most risk. However, common stockholders have the greatest potential reward of ownership if the corporation is successful. Reference: 1.2.3.6 in the License Exam

Question #6 of 110Question ID: 604704 If a company splits its stock 3 for 2, how many additional shares will be issued to an investor who owns 200 shares? A)500 B)300 C)400 D)100

D) The investor will receive an additional 100 shares from a 3 for 2 stock split. To calculate the additional shares as a result of a split, multiply the existing number of shares by the split rates (200 shares × 3/2 = 300 shares). Because the investor owned 200 shares, she will be issued 100 additional shares, bringing ownership to 300 shares. Reference: 1.2.4.1 in the License Exam

Question #42 of 110Question ID: 604724 A company has paid a dividend every quarter for the past 20 years. If the stock's price has fallen dramatically over the past quarter, but the dividend has remained the same, it may be concluded that: A)dividend yield to maturity has decreased. B)current dividend yield has increased. C)current dividend yield has decreased. D)current dividend yield has remained the same.

B Current dividend yield is income dividend divided by price. If the price of a stock decreases and the dividend remains the same, dividend yield will increase. Reference: 1.4.1.3 in the License Exam

Question #60 of 110Question ID: 604759 All of the following statements describe stock rights EXCEPT: A)they are traded in the secondary market. B)they are issued by a corporation. C)they are most commonly offered with debentures to make the offering more attractive. D)they are short-term instruments that become worthless after the expiration date.

C A corporation issues rights to existing shareholders to allow them to purchase enough stock, within a short period and at less than current market price, to maintain their proportionate interest in the company. Rights need not be exercised but may be traded in the secondary market. Warrants, not rights, are often issued with debentures to sweeten the offering. Reference: 1.7.1 in the License Exam

Question #61 of 110Question ID: 604698 After a company splits its stock 2 for 1, an investor who owns 100 shares receives: A)notice to send in the current certificate to be replaced by a new certificate for 200 shares. B)another certificate for 200 shares. C)another certificate for 100 shares. D)notice that the investor's 100-share certificate now represents 200 shares.

C After a 2 for 1 split, the transfer agent will send the investor another certificate for 100 shares. The investor is not required to return the existing stock certificate. Reference: 1.2.4.1 in the License Exam

Question #38 of 110Question ID: 604703 A change in earnings would affect the price of which of the following securities the most? A)Treasury stock. B)6% preferred stock. C)Common stock. D)10% debentures maturing in 10 years.

C Common stock is most sensitive to earnings changes because, as owners, common shareholders have a claim on the earnings of the firm. Reference: 1.2.3 in the License Exam

Question #85 of 110Question ID: 604713 A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into 5 shares of common stock. The conversion price of the common stock is: A)1200. B)25. C)20. D)100.

C Par value divided by conversion price equals the number of shares into which the security is convertible. If this security is convertible into 5 shares, we need to know what number goes into $100 5 times. That number is $20. The current market value of the preferred stock is unnecessary information. Reference: 1.3.2.3 in the License Exam

Question #14 of 110Question ID: 604680 An informal network of market makers that offers to trade securities NOT listed on an exchange is called: A)Archipelago Exchange (ArcaEx). B)National Daily Quotation Service. C)the over-the-counter market. D)National Association of Securities Dealers Automated Quotations.

C) This best describes the over-the-counter market which is an interdealer market linked by computer terminals to Financial Industry Regulatory Authority (FINRA) member firms across the country. Reference: 1.1 in the License Exam

Question #47 of 110Question ID: 604781 All of the following characteristics are advantages of a REIT EXCEPT: A)tax deferral. B)diversification. C)liquidity. D)professional management.

A A REIT is a professionally managed company that invests in a diversified portfolio of real estate holdings. REITs are traded on exchanges and OTC, which provides liquidity. The IRS does not permit tax deferrals on REIT investments. Reference: 1.9 in the License Exam

Question #56 of 110Question ID: 604692 A stockholder owns 200 shares of common stock in a corporation that features statutory voting. If an election is being held in which 6 candidates are running for 3 seats on the board, the stockholder could cast the votes in which of the following ways? A)200 votes for each of 3 directors. B)300 votes for each of 2 directors. C)100 votes for each of 6 directors. D)600 votes for any 1 director.

A A stockholder has 1 vote per seat for each share of stock he owns. Thus, in this case, the stockholder has a total of 600 votes. Under the statutory voting method, he must allocate an equal number to each seat, or 200 for each of 3 seats. Reference: 1.2.3.1.1 in the License Exam

Question #64 of 110Question ID: 604690 Which of the following represent ownership in a corporation? Debentures. Convertible bonds. Preferred stock. Common stock. A)III and IV. B)I and III. C)II and IV. D)I and II.

A Common and preferred stocks represent ownership in a company. Convertible debentures may be converted to equity securities, but until they are, they are considered debt. Reference: 1.2 in the License Exam

Question #67 of 110Question ID: 604709 Which of the following features of preferred stock allows the holder to reduce the risk of inflation? A)Convertible. B)Noncumulative. C)Cumulative. D)Callable.

A 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 of purchasing power. The ability to convert to common stock, which tends to keep pace with inflation, offsets this risk. Reference: 1.3.2.3 in the License Exam

Question #43 of 110Question ID: 604735 For reporting purposes, an order to sell 25 shares of an OTC equity security priced at $230 per share is: A)25 round lots. B)25 odd lots. C)1 odd lot. D)1 round lot.

A For OTC equity securities trading at or above $175 per share, 1 share is considered to be a round lot unit of trading. Therefore all last sale information will be disseminated for any transaction of one share or more. Reference: 1.5.1 in the License Exam

Question #41 of 110Question ID: 604753 ABC, a publicly held Corporation, decides to issue shares in an additional public offering. If the APO is for an additional 1 million shares and 60% of the shares are subscribed to in the preemptive rights offering, how many shares will the standby underwriter for this offering have available to sell to the public? A)400,000. B)110,000. C)600,000. D)100,000.

A If 60% of the additional shares are subscribed to by existing shareholders, then 40% of the additional shares will be available to be sold to the public through a standby (firm commitment) underwriting (1,000,000 × 40% = 400,000). Reference: 1.7.1.4 in the License Exam

Question #81 of 110Question ID: 604695 In a 3-for-2 stock split, an investor will: A)have 50% more shares at two-thirds the price. B)have two-thirds fewer shares at a 50% higher price. C)have 50% more shares at half the price. D)have 50% fewer shares at twice the price.

A If a stock splits 3 for 2, an investor will receive an additional 50 shares for every 100 shares owned. The price will decline by one-third, but the total value of the position will stay the same. For example, if a shareholder owns 100 shares before the 3 for 2 split, the shareholder will have 150 shares after the split (3 / 2 × 100 = 150). Reference: 1.2.4.1 in the License Exam

Question #90 of 110Question ID: 604736 When disseminating information about transactions of OTC equity securities, 1 share equals 1 round lot for stocks trading at or above: A)$175 per share. B)$125 per share. C)$150 per share. D)$200 per share.

A In instances where OTC stocks are trading at or above $175 per share, 1 share equals 1 round lot. In all other cases, similar to listed equity securities, 100 shares equals 1 round lot for OTC equity securities. Reference: 1.5.1 in the License Exam

Question #26 of 110Question ID: 604721 Cement Mixer Corporation has 1 million shares of convertible preferred stock and 2 million shares of common outstanding. Each share of preferred can be converted into ½ share of common. The preferred stock is selling at $17.50 and the common stock is selling at $35.75. If all preferred shares were converted, how many shares of common stock would be outstanding after conversion? A)2.5 million. B)500000. C)2 million. D)3 million.

A One million shares of preferred, each converted to ½ share of common, is 500,000 common shares. Five hundred thousand shares after conversion added to 2 million shares of common previously outstanding equals 2.5 million common shares. Reference: 1.3.2.3 in the License Exam

Question #17 of 110Question ID: 604757 ABC, Inc. will issue new stock through a rights offering. Terms of the offering are 10 rights plus $10 to purchase one new share of stock, with any fractional shares to be considered whole shares. ABC is currently trading at $13. If your customer owns 85 shares of ABC and wishes to subscribe to the new offering, how many shares can she purchase at the subscription price and how much money will be required? A)9 shares; $90. B)8 shares; $80. C)9 shares; $80. D)8 shares; $90.

A Owning 85 shares, the customer would receive 85 rights allowing the purchase of 8.5 shares. Because fractional shares are rounded up, a total of 9 shares could be purchased. Each share requires an additional $10 to purchase, therefore if the customer wants to buy the 9 shares the customer must pay a total of $90. Reference: 1.7.1.1 in the License Exam

Question #77 of 110Question ID: 721381 If Flying Horse Corp. splits 5:4, the presplit $.40 par value of the common stock would now be adjusted to: A)0.32. B)0.3. C)0.4. D)0.48.

A Stock splits will change the par value of the stock. To calculate the new value, multiply the original par by the inverse of the split: 4/5 × $.40 = $.32. Reference: 1.2.4.1 in the License Exam

Question #39 of 110Question ID: 604718 The rate on an adjustable preferred stock may be indexed to the: A)Treasury bill rate. B)Dow Jones Industrial Average. C)Consumer Price Index. D)Producer Price Index.

A The dividend on an adjustable rate preferred stock is tied to a particular interest rate, and the Treasury bill rate is a common benchmark. Reference: 1.3.1.2 in the License Exam

Question #84 of 110Question ID: 604687 The board of directors of DMF, Inc., announces a 5:4 stock split. The market price of DMF after the split should decrease in value by A)0.2. B)0.25. C)0.3. D)0.1.

A The easy way to handle questions about stock splits is to turn the split into a fraction. You know that after a split, which increases the number of shares outstanding, the market price per share will be reduced. With a 5:4 stock split, the new price should be about 4/5 the old price. A 1/5-change equals 20% (100% / 5 = 20%). Reference: 1.2.4.1 in the License Exam

Question #31 of 110Question ID: 604697 A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has: A)no effective change in the value of the position. B)greater exposure. C)a proportionately increased interest in the company. D)a proportionately decreased interest in the company.

A When a stock splits, the number of shares each stockholder has either increases or decreases (in the case of a reverse split). The customer experiences no effective change in position because the proportionate interest in the company remains the same. Reference: 1.2.4.1 in the License Exam

Question #3 of 110Question ID: 604738 While looking at a stock listing in the financial section of your local newspaper, you notice that the dividend is indicated by the notation ".15q." If you owned 1,000 shares, you could anticipate annual dividends of: A)600. B)150. C)15. D)60.

A) The notation .15q indicates a quarterly dividend of $.15. Therefore, the annual dividend is $.60 per share. 1,000 shares × .60 = the annual dividend of $600. Reference: 1.6.1.5 in the License Exam

Question #40 of 110Question ID: 604772 All of the following are advantages of investing in American Depositary Receipts (ADRs) EXCEPT: A)dividends are received in U.S. currency. B)currency risk is virtually eliminated. C)transactions are done in U.S. currency. D)ADRs fall under the oversight of the SEC.

B ADRs carry currency risk because distributions on ADRs must be converted from foreign currency to U.S. dollars on the date of distribution. In addition, the trading price of the ADR is affected by foreign currency fluctuation. Reference: 1.8.1.3 in the License Exam

Question #28 of 110Question ID: 604699 A 2-1 split does which of the following? Increases the number of outstanding shares Decreases the number of outstanding shares Decreases par value per share Decreases retained earnings A)II and IV B)I and III C)II and III D)I and IV

B After a 2-1 stock split, the number of outstanding shares doubles and the par value per share decreases by half. Retained earnings are not affected. Reference: 1.2.4.1 in the License Exam

Question #45 of 110Question ID: 604752 A member of the investment banking department of ABC securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make? The exercise prices of stock rights are usually below CMV of the underlying security at time of issue. The exercise prices of warrants are usually above CMV of the underlying security at time of issue. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer. A)I only. B)I, II, III and IV. C)I, II and III. D)I and II.

B All are true statements. The exercise prices of stock rights are usually below CMV of the underlying security at time of issue. The exercise prices of warrants are usually above CMV of the underlying security at time of issue. Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer. Reference: 1.7 in the License Exam

Question #57 of 110Question ID: 721385 Dividends from American Depositary Receipts (ADRs) held by U.S. investors are declared in A)U.S dollars but paid in the foreign currency B)the foreign currency but paid in U.S. dollars C)U.S. dollars and paid in U.S. dollars D)the foreign currency and paid in the foreign currency

B Although the dividends paid by ADRs held by U.S. investors are declared in the foreign currency, they are paid in U.S. dollars. This is one reason that currency risk is a factor for ADR holders. Reference: 1.8.1.3 in the License Exam

Question #53 of 110Question ID: 604679 Which of the following have equity positions in a corporation? Common stockholders. Preferred stockholders. Convertible bondholders. Mortgage bondholders. A)I and III. B)I and II. C)II and IV. D)III and IV.

B Common and preferred stockholders have equity, or ownership positions. Bondholders (mortgage or otherwise) are creditors, not owners. Reference: 1.1.1 in the License Exam

Question #87 of 110Question ID: 604768 Which of the following taxes does NOT impact the holder of an ADR? A)Federal income tax. B)Excise tax. C)State income tax. D)Foreign income tax.

B Dividends on ADRs are subject to both federal and state income tax. In addition, the country of origin will frequently levy a tax which may be used as a credit on the investor's federal income tax return. Reference: 1.8 in the License Exam

Question #80 of 110Question ID: 721384 Which of the following statements regarding warrants are TRUE? They pay dividends. They represent ownership in the issuing corporation. They allow for the purchase of common stock at a fixed price. They do not give holders voting rights. A)II and IV B)III and IV C)II and III D)I and II

B Holders of warrants have the right to buy stock from the issuer at a stated price for a specific time period. They do not pay dividends which are only paid to stockholders, nor do they give holders voting rights. The owner of the warrant does not own the stock until the warrant is exercised. Reference: 1.7.2 in the License Exam

Question #20 of 110Question ID: 604765 Investors should always be aware of taxes applicable to investments they own. Which of the following taxes might be associated with income derived from ADRs but not income from other investments? A)Excise tax. B)Foreign income tax. C)Federal income tax. D)State income tax.

B In most countries, a withholding tax on dividends is taken at the source. To the holder of an ADR, this would be a foreign income tax. The foreign income tax paid may be taken as a credit against U.S. income taxes owed. Reference: 1.8.1.2 in the License Exam

Question #16 of 110Question ID: 604685 Minority stockholders are more likely to be able to elect directors through which form of voting? A)Regular. B)Cumulative. C)Progressive. D)Statutory.

B Minority stockholders are more likely to be able to elect representatives to the board of directors through cumulative voting. Small stockholders may cast all of their votes on 1 position rather than spread them out and thus dilute them over 2 or 3 positions. Reference: 1.2.3.1.1 in the License Exam

Question #76 of 110Question ID: 604683 Common stockholders have all of the following rights and privileges EXCEPT: Voting on the composition of the board of directors. Voting on routine decisions in the company's operations. Receiving par value at liquidation. Receiving a dividend when declared. A)I and III. B)II and III. C)I and IV. D)II and IV.

B Ownership of common stock allows shareholders the right to vote on the important affairs in the life of the company, not routine operational decisions. No promise is offered with regard to the stockholder's initial investment, which might be lost, or dividends, which might not be declared. Reference: 1.2.3.1 in the License Exam

Question #62 of 110Question ID: 604693 Stockholders' preemptive rights include the right to: A)sell stock back to the issuing corporation. B)maintain proportionate ownership interest in the corporation. C)serve as an officer on the board of directors. D)purchase treasury stock.

B Preemptive rights allow stockholders to maintain their proportionate ownership when the corporation wants to issue more stock. For example, if a stockholder owns 5% of the outstanding stock and the corporation wants to issue more stock, the stockholder has the right to purchase 5% of the new shares. Reference: 1.2.3.3 in the License Exam

Question #79 of 110Question ID: 604717 Which of the following statements regarding preferred stock is NOT true? A)The dividend is fixed except in the case of adjustable preferred. B)Voting rights of preferred shareholders take precedence over those of common shareholders. C)Unlike debt, preferred stock has no set maturity date. D)Because there is no set maturity value or redemption date, the holder of preferred stock has to sell his shares in the open market to close out his position.

B Preferred shareholders do not generally have voting rights. Voting rights are characteristic of common stock, not preferred. Preferred stock is unlike debt securities in that it has no set maturity date. It is true that the dividend on a preferred stock is fixed, except in the case of an adjustable preferred where the dividend can be tied to a market interest rate and readjusted. The holder of a preferred has to sell the shares in the open market to close out his position. Reference: 1.3.1 in the License Exam

Question #51 of 110Question ID: 604714 Which of the following securities typically carries the highest dividend rate? A)Convertible preferred. B)Callable preferred. C)Straight preferred. D)Participating preferred.

B Straight preferred is the benchmark rate. As the name suggests, there are no conversion or participating features. Compared to straight preferred, both convertible and participating preferred tend to carry lower dividend rates, as the investor has been given something extra-the right to convert into common shares at a fixed price or the right to earn more than the stated rate if the issuer has a good year and the board of directors elects to make an additional dividend payment. Callable preferred allows the issuer to call the securities away from the investor. From an investor's point of view, this is not an incentive. Therefore, callable preferred tends to pay higher rates. Reference: 1.3.2.3 in the License Exam

Question #46 of 110Question ID: 604725 If a common stock is currently selling for $75 per share with a quarterly dividend of $.75, the current yield for the stock is: A)1%. B)4%. C)10%. D)3%.

B The current yield formula is annual dividend divided by current price. In this case, $3 ($.75 × 4) / $75 = 4%. Reference: 1.4.1.3 in the License Exam

Question #30 of 110Question ID: 604722 If GHI currently has earnings of $3 and pays an annual dividend of $1.75 and GHI's market price is $35, the current yield is A)8.6%. B)5%. C)1.75%. D)3%.

B The current yield is calculated by dividing the annual dividend by the current market value ($1.75 / $35 = 5%). Reference: 1.4.1.3 in the License Exam

Question #82 of 110Question ID: 604769 Which of the following statements regarding ADRs are TRUE? Dividends are payable in the underlying foreign currency. Dividends are payable in U.S. dollars. Holders have voting rights. Holders do not have voting rights. A)I and III. B)II and IV. C)II and III. D)I and IV.

B The holder of an ADR does not hold the shares of the underlying security but instead holds a receipt for those shares and therefore does not have voting rights. ADRs are U.S. securities traded in U.S. markets in U.S. dollars, with dividends payable in U.S. dollars as well. Reference: 1.8.1 in the License Exam

Question #37 of 110Question ID: 721380 The common stock of ABC Corporation currently earns $3 per share. If the price-to-earnings ratio for this stock is 14, what is the current market price? A)37. B)42. C)21. D)17.

B The price-to-earnings ratio equals the market price divided by earnings per share. The PE ratio is 14, and earnings per share are $3. Therefore, the market price is 14 × $3 = $42. Reference: 1.2.2.3 in the License Exam

Question #54 of 110Question ID: 604773 ADR owners have all the following rights EXCEPT: A)the right to receive dividends in U.S. dollars. B)the right to sell the ADR in the foreign market. C)the right to receive the underlying foreign security. D)the right to sell in the secondary market.

B The purpose of the ADR is to facilitate trading in U.S. markets. The ADR can only be traded here. If the owner exercises the right to obtain the actual foreign security, it may be sold overseas. Reference: 1.8.1.2 in the License Exam

Question #86 of 110Question ID: 604760 Which of the following statements regarding warrants is TRUE? A)Warrants' terms are generally shorter than rights' terms. B)Warrants are often issued with other securities to make the offering more attractive. C)Warrants give the holder a perpetual interest in the issuer's stock. D)Warrants are safer than corporate bonds.

B Warrants are generally issued with bond offerings to make the bonds more attractive. Warrants are long-term options to buy stock, and because they are equity securities, warrants, as investments, are considered less safe than bonds. Reference: 1.7.2 in the License Exam

Question #74 of 110Question ID: 604751 A tombstone for a new bond issue announces that 5-year warrants to purchase shares of the company's common stock at $75 are attached to the bonds. The current market value of the company's stock is $45. For what reason were the warrants attached to the bonds by the issuer? A)To make the bonds convertible into the issuer's common stock. B)To improve the marketability of the bond issue. C)To increase the dilution of the current shareholders. D)To decrease the dilution of the current shareholders.

B Warrants are often issued as a bonus (or sweetener) to entice investors to purchase new bond issues. Dilution may occur at the time the warrants are exercised (if ever), but this would not be a reason for their issuance. A warrant has nothing to do with the bond's convertibility into the underlying common stock. Reference: 1.7.2.1 in the License Exam

Question #5 of 110Question ID: 604750 New Offering: 800,000 units at $6 per unit. Each unit has 2 shares of common stock and 1 warrant. Each warrant is to purchase ½ share of common stock. Based on the information above, how many shares of stock will be sold, and how many warrants will be sold? A)800,000 shares and 200,000 warrants. B)1.6 million shares and 800,000 warrants. C)1.6 million shares and 400,000 warrants. D)800,000 shares and 400,000 warrants.

B Warrants may be distributed to stockholders in an underwriting as part of a unit. The warrant is a form of bonus to entice investors to purchase the unit. As each unit contains 2 shares, 1.6 million shares are being distributed. As each unit also includes 1 warrant, 800,000 warrants are being distributed. Reference: 1.7.2.1 in the License Exam

Question #55 of 110Question ID: 604732 Which of the following statements regarding the effects of a stock dividend is TRUE? A)Net current assets are decreased. B)New capital is channeled to the company. C)The market value of the stock is decreased. D)Capital surplus is reduced.

C A stock dividend results in an increased number of outstanding shares, each with a lower value per share. The total value of stock outstanding is unchanged. There is no new capital generated from a stock dividend. Current assets are unchanged because there is no increase or decrease to the company's cash as a result of the stock dividend. Reference: 1.4.1.2 in the License Exam

Question #72 of 110Question ID: 604701 ABC Inc. has 1 million shares of common stock outstanding ($10 par value), paid-in surplus of $10 million, and retained earnings of $10 million. If ABC stock is trading at $20 per share, what would be the effect of a 2-1 stock split? A)The retained earnings would be decreased by $10 million. B)The market price of the stock would double. C)The par value would decrease to $5 per share. . D)The number of shares outstanding would decrease by 50%.

C A stock split results in more outstanding shares at a lower par value per share. The total value of stock outstanding is unchanged. Retained earnings are not affected by a stock split. Reference: 1.2.4.1 in the License Exam

Question #95 of 110Question ID: 604771 Which of the following statements regarding ADRs are TRUE? They are issued by large domestic commercial banks. They are issued by foreign banks. They facilitate U.S. trading in foreign securities. They facilitate a foreign investor who wants to trade U.S. securities. A)II and III. B)I and IV. C)I and III. D)II and IV.

C ADRs are issued by large domestic commercial banks to facilitate U.S. investors who want to trade in foreign securities. Reference: 1.8.1 in the License Exam

Question #94 of 110Question ID: 604700 If a stock undergoes a 1-5 reverse split, which of the following increases? Market price per share. Number of shares outstanding. Earnings per share. Market capitalization of the company. A)I and II. B)II and III. C)I and III. D)III and IV.

C After a reverse split, there will be fewer shares outstanding. As a result, market price and earnings per share will increase. Overall, the market capitalization of the company will not change. Reference: 1.2.4.2 in the License Exam

Question #58 of 110Question ID: 785992 If a stock is sold on November 30 when the record date for a dividend distribution is December 1, the seller is entitled to the dividend if the trade is done regular way not entitled to the dividend if the trade is done regular way entitled to the dividend if the trade is done with cash settlement not entitled to the dividend if the trade is done with cash settlement A)I and III B)II and III C)I and IV D)II and IV

C Anyone who owns the stock on the record date will receive the dividend. In a regular way trade (T + 2 settlement), the seller will still be owner of record on the record date of December 1st, as the trade will settle after the record date. In a cash settlement transaction, the buyer will be owner of record on record date. Reference: 1.6.1.5 in the License Exam

Question #92 of 110Question ID: 604746 The following chart shows the capital transactions of ABC Corporation. Date Event Amount 10-19-96 Initial Offerings 6 million shares 4-1-2000 Treasury Purchase 500,000 shares ABC wants to raise additional capital by selling 2 million shares through a rights offering and engages an underwriter on a standby basis. By the expiration date, ABC was only able to sell 1 million shares to existing shareholders. After expiration, how many shares does ABC have outstanding? A)7 million. B)8 million. C)7.5 million. D)6.5 million.

C Before the rights offering, the company had 5.5 million shares outstanding (6 million issued minus 500,000 Treasury shares). In connection with the offering, ABC engages a standby underwriter that commits to purchase any unsold shares. Therefore, regardless of the number of shares initially subscribed to, all 2 million shares will be sold. Reference: 1.7.1.1 in the License Exam

Question #21 of 110Question ID: 604706 Which of the following statements regarding holders of common stock are TRUE? They must approve the payment of dividends. They are entitled to declared dividend distributions in proportion to their ownership. They have residual rights to corporate assets on dissolution. They have unlimited liability. A)II and IV. B)I and IV. C)II and III. D)I and II.

C Common stockholders are entitled to dividend distributions in proportion to their ownership and to residual rights to corporate assets on dissolution. They do not vote on the payment of dividends, and they have only limited liability. Reference: 1.2.3 in the License Exam

Question #18 of 110Question ID: 901825 An experienced investor wants to allocate 10% of an existing portfolio to real estate but does not want to maintain properties, be a landlord, or wait if cash is needed. Which of the following choices would be suitable given the investor's objectives? A)Purchase shares of a mortgage REIT B)Purchase shares of mortgage companies C)Purchase shares of an equity REIT D)Purchase property and assign a management company

C Equity Real Estate Investment Trusts are a way to invest in real estate without having to own or manage properties. REITs trade on exchanges and over the counter; therefore, they are liquid investments. Both of these characteristics meet the investor's objective and make equity REITs the most suitable recommendation of those offered here. Reference: 1.9.1 in the License Exam

Question #73 of 110Question ID: 604779 All of the following are true of REITs EXCEPT: A)shares are publicly traded. B)they must invest at least 75% of their assets in real estate-related activities. C)they must pass along losses to shareholders. D)they must to qualify under Subchapter M, distribute at least 90% of their net investment income.

C REITs engage in real estate activities and can qualify for favorable tax treatment if they pass through at least 90% of their net investment income to their shareholders. While they can pass through income, they cannot pass through any losses; they are not DPPs. Reference: 1.9 in the License Exam

Question #88 of 110Question ID: 604780 If a client who seeks diversification through real estate is concerned about illiquidity associated with investing in real estate, which of the following investments is most suitable? A)Interest in a real estate limited partnership. B)Privately placed investment. C)Real estate investment trust. D)Direct investment in a shopping center renting retail space to a broad variety of stores.

C Real estate investment trusts (REITs) are best suited to the client because they are market-traded securities that provide an investor with a liquid market in which to invest in real estate. Reference: 1.9 in the License Exam

Question #33 of 110Question ID: 604728 Your client owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will he own? 125 shares. 100 shares. Cost of $25. Cost of $20. A)I and III. B)II and IV. C)I and IV. D)II and III.

C Stock dividends make the number of shares owned increase and the cost per share decrease. The overall value should remain unchanged before and after the adjustment: 125 shares × $20 = $2,500, and 100 shares × $25 = $2,500. Reference: 1.4.1.2 in the License Exam

Question #99 of 110Question ID: 604707 A corporation must have stockholder approval to: A)repurchase 100,000 shares of stock for its treasury. B)declare a 15% stock dividend. C)issue convertible bonds. D)declare a cash dividend.

C Stockholders are entitled to vote on the issuance of additional securities that would dilute shareholders' equity (the shareholder's proportionate interest). Conversion of the bonds would cause more shares to be outstanding, thus reducing the proportionate interest of current stockholders. Decisions that are made by the board of directors and do not require a stockholder vote include the repurchase of stock for its treasury, declaration of a stock dividend, and declaration of a cash dividend. Reference: 1.2.3.1 in the License Exam

Question #34 of 110Question ID: 604754 Smith and Co., Inc. has 1 million shares of common stock outstanding and plans to sell 200,000 new shares via a rights offering. Joe Wilson, a common stockholder, owns 200 shares of the company. How many rights will he receive in the mail, and how many rights will it take to purchase one of the new shares? A)100 rights, 5 per share. B)100 rights, 20 per share. C)200 rights, 5 per share. D)200 rights, 20 per share.

C Stockholders receive one right per share owned. Hence, Joe receives 200 rights. The purpose is to maintain shareholders' proportionate interest in the company. Since the number of shares outstanding will increase by 20%, Joe needs to purchase 40 new shares (200 / 40 = 5 rights per share). Reference: 1.7.1.3 in the License Exam

Question #97 of 110Question ID: 604727 A company with 20 million shares outstanding paid $36 million in dividends. If the current market value of the company's shares is $36, the current yield is A)2% B)15% C)5% D)10%

C The current yield formula is annual dividends per share divided by current market price. The dividends per share are $36 million / 20 million shares = $1.80 per share. Current yield is $1.80 / $36.00 = 5%. Reference: 1.4.1.3 in the License Exam

Question #89 of 110Question ID: 604739 The record date: A)indicates when the public offering of new issues can be made legally. B)is fixed by the SEC to determine which investors own stock. C)is set by the issuing corporation to determine which stockholders will receive a declared dividend. D)is set by the issuing corporation as the mailing date for distribution of cash dividends.

C The record date is set by the corporation, at which time a list of stockholders who will receive a dividend is compiled. Reference: 1.6.1.5 in the License Exam

Question #36 of 110Question ID: 604733 Which of the following activities are NOT a registrar's function(s)? Audit the transfer agent. Accounting for the number of shares outstanding. Canceling old shares. Transferring shares into the new owners' names. A)I and IV. B)I and II. C)III and IV. D)II and III.

C The registrar accounts for the number of shares and audits the transfer agent. Reference: 1.5.2.2 in the License Exam

Question #48 of 110Question ID: 604734 Who is responsible for ensuring that a corporation does not have more shares of stock outstanding than it has been authorized to issue? A)FINRA. B)Transfer agent. C)Registrar. D)SEC.

C The registrar is responsible for keeping careful account of the number of shares a company is authorized to issue and ensuring that the number outstanding does not exceed this number. Reference: 1.5.2.2 in the License Exam

Question #68 of 110Question ID: 785994 The regular way ex-dividend date for cash dividends is the A)2nd business day preceding the settlement date B)2nd business day following the record date C)1st business day preceding the record date D)3rd business day preceding the record date

C The regular way ex-dividend date is 1 business day before the record date. Reference: 1.6.3.2.2 in the License Exam

Question #49 of 110Question ID: 604748 Gargantuan Computers, Inc. (GCI) conducts a rights offering to its current shareholders at $50 per share, plus 1 right. If the current market price of GCI is $70, what is the value of one right before the stock trades ex-rights? A)5 B)15 C)10 D)3

C The stock is trading cum rights (before the ex-date). The formula to calculate the value of one right before the ex-date is follows: CMV − subscription price / Number of rights to purchase 1 share + 1. Therefore one right is valued at $10, computed as ($70 − $50) / 2 = $10. Reference: 1.7.1.3 in the License Exam

Question #66 of 110Question ID: 604761 ABC Corporation, whose common stock is trading at $32, has issued $40 million of 8-1/8% debentures due 10-1-14. Each bond issued with a $1,000 PAR value has a warrant attached enabling the holder to buy 4 shares of ABC common at $40 per share. If all of the warrants are exercised, ABC Corporation will receive: A)$20 million. B)$10 million. C)$6.4 million. D)$12.8 million.

C There are a total of 40,000 warrants outstanding ($40 million of debentures / $1,000 par value per bond). Each warrant entitles the holder to buy 4 shares of common stock. Therefore, if all warrants are exercised, holders will be purchasing 160,000 shares (4 × 40,000) at $40 per share. 160,000 × $40 = $6.4 million. Reference: 1.7.2 in the License Exam

Question #13 of 110Question ID: 722115 To qualify for favorable tax treatment, real estate investment trusts must do all of the following EXCEPT A)invest at least 75% of their assets in real estate-related activities B)be organized as trusts C)pass through losses to shareholders D)distribute at least 90% of their investment income to shareholders

C) Real estate investment trusts (REITs) engage in real estate activities and can qualify for favorable tax treatment if they invest at least 75% of their assets in real estate-related activities and pass through at least 90% of their net investment income to their shareholders. Although they can pass through income, they cannot pass through any losses. Reference: 1.9 in the License Exam

Question #71 of 110Question ID: 604719 Which of the following must be paid before a corporation may pay its cumulative preferred stock arrearages? This year's preferred dividends. Bond interest. Corporate taxes. Common stock dividends. A)I and IV. B)I and III. C)II and IV. D)II and III.

D Before paying any dividends, the corporation must pay wages, taxes, and both interest and principal on debts that are due. Once the debt obligations have been satisfied, it may pay arrearages on cumulative preferred stock, then current fixed dividends on preferred stock, and finally common dividends. Reference: 1.3.2.2 in the License Exam

Question #32 of 110Question ID: 604694 Which of the following securities is subject to the greatest risk? A)A-rated municipal bond. B)BAA-rated ABC convertible bond. C)Series EE bond. D)XYZ Inc., common stock.

D Common stock is a junior security. It is considered less safe than bonds because it has the lowest claim to assets in the event of the issuing firm's liquidation, and is paid dividends after bonds are paid interest. Reference: 1.2.3.6 in the License Exam

Question #24 of 110Question ID: 604682 When compared to statutory voting, cumulative voting gives an advantage to: A)management rather than the board of directors. B)majority stockholders. C)participating preferred stockholders. D)minority stockholders.

D Cumulative voting allows shareholders to aggregate their votes and cast them as they please. For example, they could cast all of their votes for a single candidate. Cumulative voting makes it easier for a minority group of shareholders to gain representation on the board. Reference: 1.2.3.1.1 in the License Exam

Question #65 of 110Question ID: 721383 A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the 2 previous years. How much must the company pay the customer per share before it may pay dividends to the common stockholders? A)16. B)0. C)8. D)24.

D If the company is going to pay a common stock dividend, it must pay the preferred dividends first. A cumulative preferred stockholder must also receive all dividends in arrears. There is $16 due in back dividends in addition to $8 this year, for a total of $24. Reference: 1.3.2.2 in the License Exam

Question #96 of 110Question ID: 604702 Which of the following statements regarding a 2-for-1 stock split are TRUE? The share price is reduced by half. The total market value of the outstanding stock decreases. The total market value of the outstanding stock may increase or decrease as a result of the split. The number of shares doubles. A)II and III. B)I and III. C)II and IV. D)I and IV.

D In a 2-for-1 stock split, the number of outstanding shares is doubled and the price is reduced by half. The total market value (market cap) of the issuer's stock remains the same. Reference: 1.2.4.1 in the License Exam

Question #83 of 110Question ID: 604784 A customer is considering adding a real estate investment trust (REIT) to their portfolio. They list all of the following as "plusses" or advantages. You correct your customer and point out that one of them is not an advantage of investing in REITs. Which of the following is NOT an advantage of investing in REITs? A)Using real estate as a potential hedge against the movement of other equity securities the customer owns B)Having a professionally managed portfolio of commercial real estate assets C)Being able to divest of the shares easily D)Dividend treatment

D Of those listed, only dividend treatment can be identified as not being an advantage. While the expectation of receiving dividends is inherently good, dividends paid by REITs to their shareholders are not recognized as qualified and are, therefore, taxable to the investor at their full ordinary income tax rate. The shares are traded on exchanges or OTC and considered liquid, and having professionally managed assets should be a plus. While real estate valuation and price movements are subject to many forces, historically, real estate has provided some hedge against the movements of other equity securities. Reference: 1.9.1 in the License Exam

Question #35 of 110Question ID: 604696 Shareholder approval is required for all of the following corporate events EXCEPT: A)stock splits. B)the issuance of convertible bonds. C)the acceptance of a tender offer from a non-affiliated company. D)dividends.

D Shareholder approval is not required for the payment of dividends, but is normally required for actions that increase (or potentially increase) the number of shares outstanding, such as stock splits and the issuance of convertible bonds. A corporation's acceptance of a tender offer requires shareholder approval. Reference: 1.2.3.1 in the License Exam

Question #19 of 110Question ID: 785990 The ex-dividend date is the date on and after which the buyer is entitled to the dividend date on and after which the seller is entitled to the dividend one business day before the record date one business day after the record date A)II and IV B)I and IV C)I and II D)II and III

D Stock sold on the ex-dividend date entitles the seller to the dividend; ex-date is one business day before the record date. Reference: 1.6.1.5 in the License Exam

Question #52 of 110Question ID: 604767 The issuer of an ADR is a: A)domestic branch of a domestic bank. B)domestic branch of a foreign bank. C)foreign branch of a foreign bank. D)foreign branch of a domestic bank.

D The American Depositary Receipt (ADR) is issued by a foreign branch of a domestic bank. Everything is in English and in U.S. dollars. Reference: 1.8.1.1 in the License Exam

Question #91 of 110Question ID: 604730 ABC's stock has paid a regular dividend every quarter for the last several years. If the price of the stock has remained the same over the past year, but the dividend amount per share has increased, it may be concluded that ABC's: A)current yield per share has been unaffected. B)yield to maturity has gone up. C)current yield per share has decreased. D)current yield per share has increased.

D The current yield would have increased because current yield is the income (dividend) divided by price. A higher dividend divided by the same price results in a higher yield. Stocks do not have a yield to maturity. Reference: 1.4.1.3 in the License Exam

Question #93 of 110Question ID: 604723 A company currently has earnings of $4 and pays a $.50 quarterly dividend. If the market price is $40, what is the current yield? A)10%. B)15%. C)1%. D)5%.

D The quarterly dividend is $.50, so the annual dividend is $2.00; $2 / $40 (market price) = 5% annual yield (current yield). Reference: 1.4.1.3 in the License Exam

Question #27 of 110Question ID: 785993 If a stock's ex-dividend date is Tuesday, January 13, when is the record date? A)Wednesday, January 7 B)Thursday, January 8 C)Tuesday, January 20 D)Wednesday, January 14.

D The record date is one business day after the ex-dividend date (Wednesday, January 14). Reference: 1.6.3.2 in the License Exam

Question #70 of 110Question ID: 604756 Which of the following securities CANNOT pay a dividend? A)Class B common stock. B)Convertible preferred stock. C)ADR. D)Warrant.

D Warrants represent long-term options to buy stock at a fixed price, and, like options, cannot pay dividends. Reference: 1.7.2 in the License Exam