SIE Equities. Chapter 1.

ABC Company has issued 8%, $100 par, cumulative preferred stock. Two years ago, ABC paid a 4% preferred dividend. Last year, ABC paid a 5% preferred stock dividend. This year, ABC wishes to pay a common dividend. If the preferred stock is now trading at $94, a customer who owns 100 shares of the company's preferred stock will receive:

$1,500

ABC Company has issued 13%, $100 par cumulative preferred stock. Two years ago, ABC paid a preferred dividend of $8. Last year, it paid a preferred dividend of $12 per share. This year, ABC wishes to pay a common dividend. In order to make the distribution to common shareholders, each preferred share must be paid a dividend of:

$19

A customer buys 100 shares of preferred at $51 per share. The par value is $50. The dividend rate is 8%. Each dividend payment would be:

$200

XYZ Company has issued 10%, $100 par cumulative preferred stock. Two years ago, XYZ omitted its preferred dividend. Last year, it paid a preferred dividend of $5 per share. This year, XYZ wishes to pay a common dividend. In order to make the distribution to common shareholders, each preferred share must be paid a dividend of:

$25

A customer buys 100 shares of preferred at $101 per share. The par value is $100. The dividend rate is 8%. Each dividend payment will be:

$400

A customer buys 100 shares of preferred at $80 per share. The par value is $100. The dividend rate is 10%. The customer will receive how much in each dividend payment?

$500

During a period of stable interest rates, which type of preferred stock would show the greatest price volatility?

. Participating

ABC 10% $100 par preferred is trading at $115 in the market. The current yield is:

11.5%

ABC 8% $100 par preferred is trading at $105 in the market. The current yield is:

7.6%

ABC 8% $100 par preferred is trading at $120 in the market. The current yield is:

8.6%

A customer owns 210 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 20 rights tendered, a shareholder may purchase one additional share at $20 per share. Any fractional rights holding may be rounded up to buy an additional share. If this shareholder wishes to subscribe, which statement is TRUE?

B. The shareholder can buy a maximum of 11 shares by paying $220

At issuance, the exercise price of a warrant is set at: StatusA A. a discount to the current market price of that issuer's common stock StatusB B. the current market price of that issuer's common stock Correct C. a premium to the current market price of that issuer's common stock StatusD D. any of the above, depending on market conditions

C. a premium to the current market price of that issuer's common stock

A customer buys 1,000 shares of ABCD $25 par 8% cumulative preferred stock. This preferred issue pays quarterly dividends. This year, it missed the first 3 quarterly dividends. In the 4th quarter, it paid a common dividend of $.25 per share. In order to do this, it must have paid this preferred shareholder:

D. $2,000

Which statement is BEST regarding participating preferred stock?

D. The dividend rate is fixed as to minimum but not as to maximum

When comparing the statutory voting method to the cumulative voting method, which of the following statements are TRUE? I Cumulative voting gives the shareholder a disproportionate voting weight II Statutory voting gives the shareholder a disproportionate voting weight III Statutory voting allows the shareholder to apply as many votes per directorship as he has shares IV Cumulative voting allows the shareholder to apply as many votes per directorship as he has shares

I Cumulative voting gives the shareholder a disproportionate voting weight III Statutory voting allows the shareholder to apply as many votes per directorship as he has shares

Which of the following statements are TRUE about preferred stock? I Dividends are paid before common II Dividends are paid monthly III Dividends are based on corporate earnings IV Preferred shareholders have a prior claim to common shareholders

I Dividends are paid before common IV Preferred shareholders have a prior claim to common shareholders

ABC Corporation has recently completed a $20,000,000 offering of 10% debentures due in 2035. Each bond was sold with a warrant attached that allows the holder to buy 10 shares of ABC common stock at $50 per share. The market price of ABC is currently $42. Which statement(s) are TRUE? I The warrants help to increase the issue's marketability II The warrants help to lower the interest cost on the issue III The warrants are "under water" IV The company will raise an additional $10,000,000 if the warrants are exercised

I The warrants help to increase the issue's marketability II The warrants help to lower the interest cost on the issue III The warrants are "under water" IV The company will raise an additional $10,000,000 if the warrants are exercised

Which of the following statements are TRUE regarding warrants? I Warrants are considered to be an equity-related security II Warrant holders have pre-emptive rights III Warrants allow the holder to buy the stock of that issuer at a fixed price IV Warrants are attractive to speculators because of the leverage that they offer

I Warrants are considered to be an equity-related security III Warrants allow the holder to buy the stock of that issuer at a fixed price IV Warrants are attractive to speculators because of the leverage that they offer

Which of the following statements are TRUE regarding warrants? I Warrants give the holder the long term option to buy stock II Warrants give the holder a 2 month option to buy stock III The exercise price of a warrant is set at a premium to the stock's current market price IV The exercise price of a warrant is set at a discount to the stock's current market price

I Warrants give the holder the long term option to buy stock III The exercise price of a warrant is set at a premium to the stock's current market price

Voting of the common stockholder is required for which of the following? I When a corporation wishes to issue convertible securities II When a shareholder decides to accept a tender offer for the company's shares III When a corporation declares a stock split IV When a corporation declares a cash dividend

I When a corporation wishes to issue convertible securities II When a shareholder decides to accept a tender offer for the company's shares III When a corporation declares a stock split

A customer owns 1,000 common shares of ABC Corporation. Which of the following actions will dilute the shareholders' equity? I ABC declares a 10% stock dividend II ABC declares that it will call its convertible preferred stock, which is currently trading at a premium III ABC declares a 2:1 stock split IV ABC declares that it will issue an additional 1,000,000 common shares

II ABC declares that it will call its convertible preferred stock, which is currently trading at a premium IV ABC declares that it will issue an additional 1,000,000 common shares

Which of the following statements are TRUE about American Depositary Receipts? I ADR holders have voting and pre-emptive rights II ADRs facilitate domestic trading of foreign securities in the United States III ADRs are issued by domestic banks IV ADR holders receive dividends

II ADRs facilitate domestic trading of foreign securities in the United States III ADRs are issued by domestic banks IV ADR holders receive dividends

Which of the following actions by a corporation will affect an individual common shareholder's equity? I Declaration of a stock dividend or stock split II Conversion of convertible preferred stock III Repurchase of common shares IV Issuance of additional common shares

II Conversion of convertible preferred stock III Repurchase of common shares IV Issuance of additional common shares

The market price of common stock will be influenced by which of the following? I The par value of the shares II Expectations for future earnings of the company III Expectations for future dividends to be paid by the company IV Book value of the company

II Expectations for future earnings of the company III Expectations for future dividends to be paid by the company

Which of the following statements are TRUE when comparing convertible preferred stock and non-convertible preferred stock? I Convertible preferred issues will have a higher yield than similar non-convertible yields of the same issuer II Non-convertible preferred issues will have a higher yield than similar convertible yields of the same issuer III Convertible preferred stockholders can benefit as the common stock price rises IV Non-convertible preferred stockholders can benefit as the common stock price rises

II Non-convertible preferred issues will have a higher yield than similar convertible yields of the same issuer III Convertible preferred stockholders can benefit as the common stock price rises

Which statements are TRUE about preferred stock? I When interest rates rise, preferred stock prices rise II When interest rates rise, preferred stock prices fall III When interest rates fall, preferred stock prices fall IV When interest rates fall, preferred stock prices rise

II When interest rates rise, preferred stock prices fall IV When interest rates fall, preferred stock prices rise

If interest rates fall, issuers most likely will call: I low dividend rate preferred issues II high dividend rate preferred issues III preferred issues trading at a premium IV preferred issues trading at a discount

II high dividend rate preferred issues III preferred issues trading at a premium

Which statements are TRUE regarding participating preferred stock? Participating preferred: I participates in any bond interest payments II participates in "extra" common dividends declared by the Board of Directors III has a dividend rate that is fixed as to a minimum but not as to a maximum IV has a dividend rate that is fixed as to a maximum but not as to a minimum

II participates in "extra" common dividends declared by the Board of Directors III has a dividend rate that is fixed as to a minimum but not as to a maximum

Preferred stock has which of the following features? I Fixed rate of return II Priority claim to assets upon dissolution compared to common stock III Priority claim to dividends declared compared to common stock IV Fixed maturity

Preferred stock has which of the following features? I Fixed rate of return II Priority claim to assets upon dissolution compared to common stock III Priority claim to dividends declared compared to common stock

Which of the following terms describes common stock? I Negotiable II Non-negotiable III Callable IV Non-callable

negotiable, non callable

A middle-aged widowed customer has an investment objective of stable income and wants minimal market and liquidity risk. What type of preferred stock would be the best recommendation?

Variable rate preferred

Which statement is TRUE about the time value and intrinsic value of rights and warrants when issued?

Warrants have time value and rights have intrinsic value at issuance

Common dividends can be paid in which of the following forms? I Rights II Product III Stock IV Cash

cash, stock, product

Variable rate preferred

has a dividend rate that is tied to a market rate of interest, and the dividend rate varies as that rate varies. When market interest rates rise, the dividend rate rises; when market interest rates fall, the dividend rate falls. Because the dividend rate varies, the price of the security stays right at par value and has minimal market risk.