SIE Chapter 3

Preferred dividends: A. Must be satisfied before common dividends B. Must be satisfied after common dividends C. Must be satisfied before bond interest payments D. Must be satisfied each year

A. Must be satisfied before common dividends Preferred shares receive dividends before the common stock dividends can be paid. However, a company doesn't guarantee preferred dividends will be paid each year.

Treasury stock: A. Was previously issued stock that has been subsequently repurchased by the corporation B. Receives dividends C. Carries voting rights D. Is authorized stock that's held in the corporation's treasury until it's issued

A. Was previously issued stock that has been subsequently repurchased by the corporation Treasury stock is stock that has been reacquired by the issuing corporation. Treasury shares don't receive dividends and don't carry voting rights.

Which shares of preferred stock may increase the most if the value of the company's common stock appreciates? A. Cumulative preferred stock B. Convertible preferred stock C. Participating preferred stock D. Callable preferred stock

B. Convertible preferred stock Convertible preferred stock can be exchanged for the common stock of the issuer. For that reason, if the common stock's value increases, the market value of the convertible preferred stock will also increase.

When warrants are issued, the exercise price is: A. Lower than the current market price of the stock B. Higher than the current market price of the stock C. Equal to the current market price of the stock D. Based on the average price of the stock over the last year

B. Higher than the current market price of the stock Warrants are typically issued with a strike price that's higher than the current market price of the stock (i.e., at a premium).

Common and preferred stock are similar in that: A. Both have a fixed dividend B. The dividends for both must be declared by the board of directors C. Both are guaranteed to receive an annual dividend D. Both have an equal vote on corporate issues

B. The dividends for both must be declared by the board of directors Dividends for both common and preferred stock must be declared by the board of directors. While preferred stock normally has a fixed dividend, neither common nor preferred stockholders are guaranteed a dividend.

Which of the following statements is TRUE regarding warrants? A. Warrants receive dividends when the common stock receives dividends B. Warrants can be perpetual C. Warrants are only issued by blue-chip corporations D. Warrants are guaranteed by the Options Clearing Corporation

B. Warrants can be perpetual Warrants can be perpetual in their duration and are issued by the corporation that also issues the common stock. Warrants give the holder the ability to convert the warrant into the common stock of the same corporation at a specified price and at the holder's option.

If a company is utilizing statutory voting, how many votes will a common shareholder receive per vacant seat on the board? A. One vote for each vacant position on the board B. One vote for each director that's present at the meeting C. One vote for each share that the stockholder owns D. One for each proxy that's filed by the board of directors

C. One vote for each share that the stockholder owns When using the statutory voting method, a shareholder is given one vote, per share, per open seat on the board. For example, if an investor owns 1,000 shares and there are three openings on the board, she's able to cast 1,000 votes for the three open seats. If she chooses not to use all of her 1,000 votes per open seat, she cannot transfer them to another candidate. If the company utilized a cumulative voting system, a shareholder is able to multiply the number of shares owned by the number of open seats on the board. With this method, the stockholder is able to be very selective in how to cast her votes. For example, a stockholder may choose to use all of her votes on only one candidate, thereby making it more likely that her candidate will gain a seat on the board.

The security with the longest expiration date would normally be a: A. Put B. Call C. Warrant D. Right

C. Warrant A warrant generally has an expiration date longer than a put, call, or right. There are some warrants which never expire.

Which of the following represents the correct ranking of securities from longest to shortest life? A. Rights, options, warrants B. Options, warrants, rights C. Warrants, options, rights D. Warrants, rights, options

C. Warrants, options, rights Rights usually last less than 60 days. Options usually last for nine months or less, although some can exist for three years. Warrants usually have a life span of several years and they can even be perpetual.

A company based in Europe with offices located in New Jersey would like to have its stock traded on the NYSE. This would most likely be accomplished through the issuance of: A. Bankers' Acceptances B. Eurodollar bonds C. Yankee bonds D. American Depositary Receipts

D. American Depositary Receipts American Depositary Receipts (ADRs) facilitate U.S. investment in the stock of foreign corporations. When the foreign securities are deposited in a U.S. bank based in that country, a receipt for those securities is issued and traded in the U.S. as if it were the foreign security itself.