Series 65 Unit 12

Which of the following are regulated under the Securities Exchange Act of 1934? New issues Broker-dealers Transfer agents A) I, II, and III B) II and III C) I and III D) I only

A. The Securities Exchange Act of 1934 was designed to regulate securities transactions, securities markets, and the securities firms who do the trading. (i.e., broker-dealers and their agents) Securities Act of 1933 covers requirements relating to new issues

Reasons why a corporation might issue a convertible preferred stock would include A) tax savings to the issuer B) a lower cost to the issuer than would be incurred by the issuance of convertible bonds C) giving those shareholders the ability to convert into the issuer's bonds D) giving those shareholders an opportunity to participate in the future success of the company

D.

An investor wishing to add some diversification to his portfolio wishes to purchase 200 shares of an ADR for a Japanese electronics manufacturer. The ADR is listed on the NYSE. Which of the following risks should be of most concern to this investor? Business Currency Inflation Liquidity A) III and IV B) I and IV C) I and II D) II and III

D.

An employee is offered a nonqualified stock option with an exercise price of $20 per share. If the option is exercised when the current market value of the stock is $30, the employee A) is taxed on $30 per share as if it were salary B) has a capital gain of $10 per share C) is taxed on $10 per share as if it were salary D) is taxed on $20 per share as if it were salary

C. In the case of NSOs, the difference between the exercise (or strike) price and the current market value is considered salary to the employee.

Which of the following statements is TRUE? A) A corporation is required to pay a cash dividend to stockholders if the earnings are sufficient, especially if it is of preferred stock. B) A growth company would be more likely to pay a cash dividend than a stock dividend. C) A stock split increases the owner's proportionate share of the company. D) Dividends have a significant influence on the value of the corporation's stock.

D. Dividends play a large role in what someone is willing to pay for the stock. For example, the dividend discount model (DDM) values a stock as the discounted present value of future dividends. A company is not required to pay dividends. A growth company will tend to pay no cash dividends but rather use the money for expansion.

Which of the following is not included in fundamental analysis of a company? A) The study of a firm's financial statements. B) The study of the direction of the economy. C) The study of a company's historical stock prices and trading volume. D) The study of a firm's position within its industry.

C. Studying historical stock prices and volume is related to technical analysis. Fundamental analysis is concerned with the earnings potential and risk associated with a particular firm. Doing so requires viewing the entire economy, that company's industry, and its financial statements.

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 IV B) I and IV C) I and III D) II and III

C. ADRs are issued by large domestic commercial banks to facilitate U.S. investors who want to trade in foreign securities.

Discounted cash flow is commonly thought of as applying solely to fixed-income securities. However, forms of DCF used for the valuation of common stock also include the price-to-earnings ratio the dividend discount model the discounted book value model the dividend growth model A) II and IV B) I and IV C) II and III D) I and II

A.

Which of the following statements concerning international investing is correct? A) Information is not as readily available on foreign investments as on domestic ones. B) Foreign markets are usually mature and offer no growth advantages. C) The addition of foreign securities to a portfolio may result in increased portfolio risk due to the different movements of foreign markets and U.S. markets. D) The rates of return on foreign securities are generally less than those available from U.S. markets.

A.

Which of the following statements regarding a 100% stock dividend 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) I and III B) I and IV C) II and IV D) II and III

B. In a 100% stock dividend, 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.

Corporations have found that one way to increase employee motivation is to grant options to purchase stock in the company. Incentive (qualified) options differ from nonqualified options in all of the following respects except A) ISOs may only be granted to employees while NSOs may be given to virtually anyone. B) the recipient of the grant of the ISO has no income tax consequences at the time of the grant. C) there is a maximum 10-year limit for exercising an ISO; no such time limit exists for an NSO. D) the holder of an ISO can recognize capital gain (loss) as a result of exercise, whereas ordinary income (loss) is the result with an NSO.

B.

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 has been 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) $16.00 B) $8.00 C) $12.00 D) $6.00

D. Because this preferred stock is noncumulative, any missed dividends need not be paid before common dividends can be declared. If this were a cumulative issue, any dividends not fully paid would go into arrears and accumulate until paid to the preferred cumulative stockholder. During this time, common dividends could not be declared or paid until the cumulative holders were paid in full. A 6% dividend on a $100 par means a $6 dividend each year per share.

If a woman owns 9% of the common shares of XYZ, and her spouse owns 2% and wishes to sell his shares, he: is considered an affiliate. is not considered an affiliate. must file a Form 144 to sell. does not have to file a Form 144 to sell. A) II and IV B) I and IV C) I and III D) II and III

C.