seris 65

An investor who chooses to use preferred stock as an income source instead of bonds would potentially incur which of the following risks? I. Loss of principal can occur. II. Price volatility of preferred stock is closely related to interest rates. III. Preferred stock cannot be traded as readily as bonds. IV. If the stock is callable, the client's income can be suddenly lowered.

I, II, and IV

One of the features of convertible preferred stock is that: the holder is able to select the conversion price. B) the dividend is paid ahead of all other securities. C) the owner has the opportunity to convert the stock into the issuer's bonds. D) the owner has the opportunity to participate in the growth of the company.

the owner has the opportunity to participate in the growth of the company.

One of the features of convertible preferred stock is that A) the owner has the opportunity to participate in the growth of the company. B) the holder is able to select the conversion price. C) the owner has the opportunity to convert the stock into the issuer's bonds. D) the dividend is paid ahead of all other securities.

the owner has the opportunity to participate in the growth of the company.

Three years ago, an investor purchased 1,000 shares of stock in the Equity Protective Life Insurance Company (EPLIC). The purchase price was $53 per share. The current market value of EPLIC stock is $79 per share. If the investor is in the 24% federal income tax bracket, it is correct to state that A) the investor owes tax on a $26,000 short-term capital gain. B) the investor's tax liability is $3,900. C) no tax is owed by the investor. D) the investor owes tax on a $26,000 long-term capital gain.

no tax is owed by the investor.

Which of the following statements regarding ADRs are true? I. They are issued by large domestic commercial banks. II. They are issued by foreign banks. III. They facilitate U.S. trading in foreign securities. IV. They facilitate a foreign investor who wants to trade U.S. securities.

I and III

Julie owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own? 125 shares 100 shares Cost basis of $25 Cost basis of $20 A) II and IV B) II and III C) I and IV D) I and II

I and IV

Which of the following statements regarding a 100% stock dividend are true? I. The share price is reduced by half. II. The total market value of the outstanding stock decreases. III. The total market value of the outstanding stock may increase or decrease as a result of the split. IV. The number of shares doubles.

I and IV

Which of the following statements regarding nonqualified stock options (NQSOs) is correct? A) Unlike incentive stock options, NQSOs are publicly traded. B) The exercise of NQSOs does not create taxable income. C) 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. D) 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.

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.

Which of the following statements about equity securities is not true? A) Preferred stock is usually nonvoting. B) Preferred stock pays a fixed dividend. C) Common stock is less sensitive to interest rate risk than preferred stock. D) Preferred stock is an equity security while common stock is a hybrid.

D) Preferred stock is an equity security while common stock is a hybrid.

Which of the following statements concerning equity securities is not correct? A) Equity securities represent a lending interest in a corporation. B) Preferred stock is an equity security with an intermediate claim (between the bondholders and the common stockholders) on a firm's assets and earnings. C) Equity securities provide a residual claim, after payment of all obligations to fixed-income claims, on the income and assets of a corporation. D) Common stock is an equity security representing an ownership interest in a corporation.

A) Equity securities represent a lending interest in a corporation.

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 this year, each preferred share must be paid a dividend of: A) $10. B) $25. C) $15. D) $5.

$10.

The board of directors of DDC omitted dividends in 2020 on their $100 par 6% noncumulative preferred stock. In 2021, a $2 preferred dividend was paid. For DDC, 2022 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 2022 in order to pay a common dividend? A) $16 B) $6 C) $8 D) $12

$6

Which of the following statements regarding international investing is not correct? A) An emerging market is a market in a highly developed foreign economy with stable political and social institutions. B) International investing offers diversification and potentially higher returns. C) One method to engage in international investing is through American depositary receipts. D) An international investor faces the additional risks of foreign currency risk and country risk.

A) An emerging market is a market in a highly developed foreign economy with stable political and social institutions.

Which of the following has the least exposure to inflation risk? A) Cash B) Fixed annuity C) Common stock D) Preferred stock

Common stock

An investor wishing to add some diversification to his portfolio wants 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? I. Business II. Currency III. Inflation IV. Liquidity

I and II

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

I and III

Which of the following are subject to the holding period requirements of Rule 144 of the Securities Exchange Act of 1934? Registered securities held by a control person Unregistered securities held by a noncontrol person Registered securities held by a noncontrol person Unregistered securities held by a control person A) I and III B) II and III C) I and IV D) II and IV

II and IV

An investor holding which of the following equity securities would not expect to have preemptive rights? A) Common stock B) Control stock C) Preferred stock D) Common stock acquired in a private placement

Preferred stock

Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Stock acquired by a corporate affiliate in a private placement B) Unregistered stock acquired by a nonaffiliate under an investment letter C) Stock acquired on the NYSE by a corporate affiliate D) Unregistered stock acquired by a corporate affiliate in a stock option program

Stock acquired on the NYSE by a corporate affiliate

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

a U.S. depositary bank.

An American depositary receipt (ADR) is A) a type of derivative used to speculate in foreign currencies. B) a certificate representing ownership of a U.S. security that is deposited in a foreign bank. C) a document used with interest rate swaps. D) a certificate representing ownership of a foreign security that is on deposit at a U.S. bank.

a certificate representing ownership of a foreign security that is on deposit at a U.S. bank.

One of your customers owns 300 shares of the 5% $100 par cumulative preferred stock issued by the Northern Atlantic Railroad (NAR). The cumulative feature provides that A) the annual dividend is $5 per year. B) all unpaid dividend arrearage must be brought current before interest may be paid on NAR's subordinated debentures. C) the customer has 300 votes times the number of directors being elected and can vote them in any manner desired. D) all unpaid dividend arrearage must be brought current before a dividend may be paid on NAR's common stock.

all unpaid dividend arrearage must be brought current before a dividend may be paid on NAR's common stock.

An investor may expect to receive dividends from A) a put option. B) a warrant. C) a call option. D) an ADR.

an ADR.

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

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

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

common or preferred stock.

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) common. B) participating. C) convertible. D) cumulative.

cumulative.

A corporation would like to offer their employees an opportunity to participate in the future growth of the company. Among the methods you might suggest are A) employee stock options. B) preemptive rights. C) subordinated debentures. D) voting trust certificates.

employee stock options.

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.

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

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) receive dividends when declared by the board of directors. D) have voting rights.

have voting rights.

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

no effective change in the value of the position.

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.

resale.

One way in which incentive stock options (ISOs) differ from nonqualified stock options (NQSOs) is that A) there is a maximum five-year limit for exercise on the ISO, while the time limit on the NQSO is 10 years. B) gains on an ISO are always short term, while those on an NQSO are long term. C) the bargain element of the ISO is an AMT preference item. D) the bargain element of the ISO is reported as wages on the tax returns of the employer and the employee.

the bargain element of the ISO is an AMT preference item.

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

the right to determine the par value of the stock.

The primary defining characteristic of an equity security is A) it pays dividends, usually quarterly. B) it represents ownership in a corporation. C) voting rights. D) the ability to keep pace with inflation.

it represents ownership in a corporation.

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.

limited liability.

All of the following represent ownership in a corporation except A) mortgage bonds. B) common stock. C) preferred stock. D) convertible preferred stock

mortgage bonds.

If a customer owns 7% of a publicly traded company's stock and his spouse owns 6% and wants to sell her shares, which of the following statements is true? A) The spouse is an affiliate and Rule 144 applies. B) The spouse is not an affiliate and Rule 144 does not apply. C) The spouse is not an affiliate and Rule 144 applies. D) The spouse is an affiliate and Rule 144 does not apply.

The spouse is an affiliate and Rule 144 applies.

A client is considering the purchase of American depositary receipts (ADRs). She is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle? A) Information regarding the foreign company is easily attainable. B) They are not subject to exchange rate, or currency, risk. C) ADRs are traded on exchanges and the OTC markets. D) ADRs are denominated and pay dividends in U.S. dollars.

They are not subject to exchange rate, or currency, risk.

A client is considering the purchase of American depositary receipts (ADRs). The client is looking to further diversify her portfolio. Which of the following is not a feature of this type of investment vehicle? A) ADRs are both liquid and marketable. B) ADRs are denominated and pay dividends in U.S. dollars. C) They are not subject to exchange rate, or currency, risk. D) Information regarding the foreign company is more easily attainable than if directly purchased.

They are not subject to exchange rate, or currency, risk.

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

liquidity.

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 subject to Rule 144 volume limitations. 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 without restriction.

may sell immediately subject to Rule 144 volume limitations.

One of the rights of those owning common stock is the opportunity to vote on issues brought up at the corporation's annual meeting. To be eligible to cast a vote,

ownership must be established by the record date.

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

pays past and current preferred dividends before paying dividends on common stock.

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

pays past and current preferred dividends before paying dividends on common stock.

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) adjustable-rate preferred stock. B) straight preferred stock. C) common stock. D) convertible preferred stock.

straight preferred stock.