SIE Exam - Part 2

the term penny stock generally refers to a security issued that trades OTC at a price less than

$5 per share

at the time of the issuance of a warrant by a corporation, the warrant

will not have any intrinsic value a warrant is a type of equity instrument issued by a corporation, where at the time of issuance the exercise price of the warrant will be higher than the current market price of the company's common stock. in other words, warrants are not issued with intrinsic value

which of the following does not pay a dividend? A) Mutual fund B) Warrants C) ADR D) Unit investment trust

Warrants Warrants do not pay dividends. UITs, Mutual Funds, and ADRs all pay dividends from the underlying securities

When a company engages in a stock split, the result is

a change in the number of shares outstanding and share price, but no true valuation change to the investor a stock split represent an artificial adjustment of a company's stock price and shares outstanding. the goal is to either increase the share price (for a low-priced share) or to reduce the share price (for a high priced stock)

Authorized stock is best described as common shares that

a corporation is permitted to sell to the public Authorized stock represents the number of shares a corporation may sell to the public in the future.

A company can declare dividends in which of the following ways? A) stock or stock of a subsidiary company B) all of the above C) goods produced by the company D) cash

all of the above a company may pay a dividend in cash, stock, or stock of a subsidiary company or even goods produced by the company

participating preferred stock is best characterized as stock that

allows the holder to receive an additional dividend distribution participating preferred stock allows the holder to receive an additional dividend distribution, usually contingent on the occurrence of a specific event, such as a particular level of common stock dividend

in a cash transaction on the record date, when does the ex-dividend date occur?

business day following the record date for a cash transaction, the ex-dividend date is the business day after the record date for a non-cash transaction, the ex-dividend date is one business day before the record date

the possibility always exist that a particular company may not be profitable. this is best characterized as

business risk the risk that a particular company may not be profitable is usually characterized as business risk

Which of the following is a type of risk not commonly associated with ADRs?

call risk ADRs do not carry call risk, as they are equity securities and as such the issuer does not have the right to redeem the shares from the investor.

in which type of transaction does the confirmation and settlement occur on the trade date

cash for cash transactions, confirmation and settlement occur on the trade day

what will an investor own after exercising a warrant at its strike price

common stock warrants give holders a long-term option to buy shares of common stock at a fixed exercise or strike price. they are considered a corporate equity security, similar to common stock

The type of voting that enables a shareholder to pool their votes together and cast them as desired is

cumulative voting

a proven way to reduce non-systematic risk in an equity portfolio is to

diversify among different stocks the best protection against non-systematic risk is to broadly diversify - not put all eggs in one basket

Investors who are concerned about non-systematic risk may try to

diversify their portfolio

XYZ co is viewed as having a high growth potential with strong anticipated future earnings. XYZ would be an example of

growth stock a growth stock is a company that tends to reinvest most of their earnings and has a high potential for growth

Preferred stockholders are entitled to certain rights, including

having a claim on corporate assets before common stockholders if the corporation is dissolved preferred stockholders receive dividends before common stockholders, preferred dividends are based on a percentage of par value (usually $100) and have a claim on assets before common stockholders

to earn a profit on a short sale position, the short sale transaction price must be

higher than the buy-to-cover price a short sale is a bet that a stock's price will fall - i.e. the price at which the short sale is covered (buy-to-cover price) is lower than the short sale transaction price

Common stock holders will receive a dividend

if the board of directors has declared a dividend the corporation must first declare a dividend, which then entitles a common stockholder to receive the dividend

ABC Corporation is planning to do a $50,000,000 debenture offering in the next few months and hopes to make the offering as attractive as possible to investors. To achieve this goal, ABC Corporation would most likely

include a detachable warrant as a sweetner with the bond offering the inclusion of a warrant with the bond deal makres the offering more attractive to investors the warrants can be detached later and sold in the open market or exercised for the shares of the company at a pre-set price. this would enable the issuer to sell their bond to the public at a lower interest rate than would otherwise be possible. warrants typically have long expirations, giving investors flexibility as to how they would like to use the warrant to their best advantage

an investor holds 10 warrants in XYZ company. the company's common stock currently sells for $30.00 per share. what are the warrants worth?

it depends on the warrants' exercise price warrants have value only if the stock appreciates over time to a level about the warrant's exercise price profit then is approximately the stock price less the exercise price in this example, if the exercise price is $30.00 or above, the warrants may have little value. however, any appreciation above the exercise price can generate profit

which of the following best characterizes a defensive stock?

it will be largely unaffected by changes in economic activity A defensive stock will by definition be resistant to changes in economic cycles. Examples of these companies include consumer staples and utilities.

XYZ Co. has engaged in a 4:1 stock split. As a result, holders of XYZ shares will now have

more shares with a lower per share value Upon the occurrence of a forward stock split, an investor will have more shares with a lower per share value. The important point with a stock split is that the investor does not gain or lose any absolute value with respect to their holdings in the company.

If a securities contract is due on a holiday or Saturday, when is it delivered?

next business day securities that are due on holidays or Saturdays are delivered at the officer of the purchaser on the next business day

a computer company develops a product which contains significant flaws, resulting in a diminished share price. this is an example of

non-systematic risk non-systematic risk, is also called business risk, is a risk specific to an individual company, rather than the market as a whole

the shares of a corporation's stock that are held by the public are known as

outstanding stock outstanding stock are shares that have been sold to the public and are currently owned by public investors treasury stock was previously outstanding, but was repurchased by the corporation to be retired or reissued

Which of the following dates relating to dividends generally occurs last?

payable the key dates for dividend payments always follow the same order for regular way transactions: declaration, ex-dividend, record, payable. DERP

An OTC equity security worth less than $5 per share is defined as a

penny stock

the process of a shareholder assigning voting rights to a third party is

voting by proxy a common shareholder often casts votes by proxy, or through a third party that is representing the shareholder's votes

An investor buys equity securities that convey the right to purchase shares of a company's common stock at a fixed price. These securities are called

warrants warrants are considered a form of equity security because they give holders the right to purchase shares of a company's common stock at a fixed price or on specified terms

the registrar is best characterized as the entity

who maintains records of ownership of securities The registrar maintains records of ownership of securities by matching each share of stock against the company's ownership record. A transfer agent records changes of ownership in securities. Often the transfer agent and the registrar are the same entity.

ABC stock is traded on the New York Stock Exchange. If a dividend is declared by the ABC Board of Directors, the NYSE must be notified no later than

10 business days prior to the record date the exchange must be notified 10 business days before the record date when a dividend is to be paid

A company has issued 8% preferred stock with a par value of $30 per share. The preferred stock currently is selling for $40 per share. The annual dividend paid to holders of the preferred shares will be

2.4

ABC Corp issues 4.5% preferred stock with a par value of $100. if the shares are currently trading at $90 the annual dividend each share can be expected to pay is

4.50 preferred stock dividends are quoted as a percentage of par value, not the market value of the shares. therefore it is calculated as par value multiplied by the dividend rate

ABC corporation declares a 4 for 1 stock split. After the split, a shareholder that currently has 200 shares will have

800 shares A 4 for 1 split means the investor will receive 4 shares of stock for every 1 share previously owned, so the investor will have 800 shares (200 shares x 4), and each share will be worth ¼ the original value.

A share in a foreign corporation that underlies an ADR is known as a(n)

ADS an American depository share (ADS) is the name given to the shares of the foreign corporation that are held by the depositary institution. these shares are packaged to create the ownership interests known as american depositary receipts. a global depository share (GDS) is the underlying for a global depository receipts (GDR)

What equity security, traded on U.S. exchanges, gives investors the ability to purchase foreign stocks denominated in U.S. dollars?

American Depository Receipts American Depository Receipts (ADRs) are receipts issued by U.S. banks, with each ADR representing one or more shares of foreign stock. ADRs are denominated in dollars and make it possible for U.S. investors to invest in foreign companies through domestic (U.S.) markets, without currency transaction costs.

the individual shares of non-US companies that are listed on US stock exchanges are known as

American Depository Receipts American Depository Shares (ADSs) refer to the individual shares of an ADR held by the bank, but the ADRs are actually listed on an exchange. American Depository Receipts (ADRs) are used by non-US companies to enable US investors to purchase shares of their company's stock and for that stock to trade on a US stock exchange adrs are issued by a US depository bank and are quoted and pay dividends in US dollars. Global Depository Receipts (GDRs) are blank certificates issues by a bank that represent shares of a stock that are traded on a foreign stock exchange. Global Depository Shares (GDSs) refer to the individual shares of a GDR

brunswick issues a series a $2.40 cumulative convertible preferred voting stock. this stock I) is convertible into common stock II) pays dividends in arrears III) receives excess dividends on a pro rate basis with common stock

I and II only cumulative convertible preferred stock can be converted into common stock additionally, all dividends in arrears from cumulative stock must be paid before any dividends are paid on the common stock participating preferred stock may receive excess dividends based on better than expected earnings for the company

An investor who owns shares in ABC company is notified of a rights offering. If the investor decides to participate in this offering I. her stake in company ownership will not be diluted II. she must sell all her ABC shares III. she will acquire more ABC shares IV. she will convert her equity holdings to a senior debt position

I and III a rights offering raises new equity capital by giving existing shareholders the right to acquire more shares in proportion to their current holdings shareholders who exercise their rights will not have their ownership stakes in the company diluted

Which of the following statements about warrants are TRUE? I. They may be sold with a bond as a sweetener II. They have shorter expiration periods than options III. They function very much like call options IV. They trade exclusively on exchanges

I and III warrants are often added to bonds as sweeteners to make the issue more attractive to investors like a call option, they give the holder the right to buy a specified number of shares of stock at a specified price however, they have a longer expiration period than options (sometimes up to 15 years) though some warrants are listed one exchanges, most trade over the counter

When issuers include warrants in bond offerings, the issuer I. typically pays a lower interest rate on the bonds II. typically pays a higher interest rate on the bonds III.has made the bond more marketable IV. has made the bond less marketable

I and III when warrants are added as sweeteners to a bond offering, the issuer is able to attract greater investor interest. the bond is more marketable and the issuer can sell it with a lower interest rate

when comparing rights and warrants, which of the following statements are TRUE? I) rights are longer term than warrants II) warrants are longer term than rights III) at issue, the exercise price of a right is lower than the market price of the underlying stock IV) at issue, the exercise price of a warrant is lower than the market price of the underlying stock

II and III rights are short term instruments that allow the holder to buy the stock at a price that is typically lower than the current market price of the stock. warrants are long-term instruments. the exercise price of the stock is typically higher than the market price of the stock at the time the warrants are issued. warrants have value only if the price of the stock appreciates

Preferred stock includes which of the following features? I. Voting rights II. Dividends if declared by the Board of Directors III. Priority over debentures in a corporate liquidation

II only preferred stock pays dividends if declared by the BOD. preferred stock generally does not have voting rights. while it has priority over common stock in the event of a corporate liquidation it does not have priority over corporate debt, including debentures

the regular-way trade cycle for most trades is

T+2 the regular-way trade cycle for most trades settles on the second day after trade execution - T+2

Which of the following is the mechanism through which shares of non-U.S. companies trade on U.S. stock exchanges?

american depository receipts American Depository Receipts (ADRs) are used by non-U.S. companies to enable U.S. investors to purchase shares of their company's stock and for that stock to trade on a U.S. stock exchange. ADRs are issued by a U.S. depository bank and are quoted and pay dividends in U.S. dollars. American Depository Shares (ADSs) refer to the individual shares of an ADR. Though ADSs represent claims on foreign shares, they are subject to fluctuations in currency prices. Global Depository Receipts (GDRs) are blank certificates issued by a bank that represent shares of a stock that are traded on a foreign stock exchange. Global Depository Shares (GDSs) refer to the individual shares of a GDR.

Owners of a corporation's common stock are required to receive audited financial information about the company

annually corporations must provide audited annual statements to outstanding shareholders

who is allowed to buy stock rights during the ex-rights period?

any interested investor the ex-rights period begins on the ex-rights date and continues until the rights expire, usually several weeks later. during this period, the rights are detached from the stock and trade separately, under their own symbol., anyone can buy the,

concerning cumulative preferred stock

any missed dividends must be paid before any common shareholders are paid with respect to cumulative preferred stock, any missed dividends have to be paid to these shareholders before any common dividends are paid

when a corporation goes into bankruptcy, common stockholders

are the last party to recover their investment common stockholders are always the last parties to be repaid when a corporation becomes bankrupt

issuers are required to provide FINRA notice of stock splits and stock dividends

at least 10 days prior to the record date issuers are required to provide notice of a dividend distribution, stock split or stock dividend no fewer than 10 days before the record date

Adjustable-rate preferred stock pays dividends that are determined

based on an underlying benchmark Adjustable -rate preferred stock pays dividends that are determined based on an underlying benchmark, typically the US Treasury bill.

all of the following statements about the differences between common stock and preferred stock are true EXCEPT A) preferred stock has a higher liquidation priority than common stock. B) common stock has voting rights, but preferred stock does not. C) dividends are less certain in preferred stock. D) common stock has higher profit potential than preferred stock.

dividends are less certain in preferred stock preferred stock tends to make regular dividend payments, whereas common stock may or may not based on the company's profits

the par value of preferred stock is important to know as

dividends are typically paid as a percentage of par value the main attraction of preferred stock is steady dividends, which are quoted as a percentage of par value. par value does not, however, indicate the market value of shares

Broadly diversifying an equity portfolio creates all the following benefits except A) the opportunity to participate in different capitalization sizes. B) protection against a decline in a specific economic sector. C) elimination of systematic risk. D) reduction of portfolio beta.

elimination of systematic risk systematic risk, also referred to as market risk, cannot be avoided through broad diversification because almost all stocks are influenced by the direction of the market

An investor owns ten warrants of XYZ Co. These warrants are considered

equity securities, as they may be exercised for shares in XYZ warrants are considered equity securities of a company, as their exercise will allow the holder to receive shares of the underlying company. note that warrants do not make interest payments to investors

HMK Inc. will be paying a cash dividend to their holders of record. which of the following dates will HMK not decide?

ex-dividend date the ex-dividend date is not determined by the issuing company, but rather is a function of the transaction settlement cycle in the marketplace

the number of shares an investor owns will increase and the price per share will decrease in the event of a

forward stock split in a forward stock split (3:2 for example), the number of shares owned by the investor will increase while the price per share will decrease proportionately

XYZ Inc. declares a $0.30 dividend payable on Monday, August 15, to all shareholders of record as of Monday, August 8. When is the ex-dividend date for a regular way trade in the stock?

friday august 5th for regular way trades in equities, the ex-dividend date is one business day before the record date

Common stock is most often purchased to satisfy which of the following investment objectives?

growth common stock is typically recommended to satisfy growth or capital appreciation objectives. income objectives are met with fixed income instruments such as bonds or preferred stock. government securities are often recommended when there is concern for loss of principal, and municipal securities are used to achieve tax minimization

Benefits of common stock ownership include all of the following EXCEPT A) the opportunity for capital appreciation B) preferred status in a corporate liquidation C) the right to elect the company's Board of Directors D) the right to receive dividends when declared

preferred status in a corporate liquidation Investors purchase common stock largely for its appreciation potential. They also benefit from voting rights and dividends when declared by the Board of Directors. Common stock, however, is junior in claim to all other outstanding securities in a corporate liquidation.

preferred stock has a lower potential for appreciation and capital gains than common stock issued by the same company because

preferred stock pays a fixed dividend because preferred stock pays a fixed dividend, it has a lower potential for appreciation and capital gains than common stock shares can appreciate modestly as interest rates fall, because the fixed dividend then becomes more value

annual financial statements, or the 10K, must be filed by

public companies Public companies must file annual financial statements, known as the 10K, with the SEC within 90 days of year-end. They must also provide annual reports to their shareholders.

dividends are typically paid

quarterly Dividends are typically paid on a quarterly basis and, therefore, must be annualized to calculate the implied dividend yield for a given public company.

when compared to ownership rights of common stock, owners of preferred stock generally

receive higher dividends preferred stock is typically purchased for the income stream it delivers; so owners of preferred stock usually receive higher dividends than owners of common stock. preferred stock has seniority over common in corporate liquidations, but usually does not have voting rights. dividends for common or preferred shares are not guaranteed; they must be declared by the Board of Directors

In order to receive a dividend, a shareholder must own stock as of the

record date An investor must own stock as of the date of record in order to receive a dividend payment. To own stock by the record date, it must be purchased before the ex-dividend date which is 1 business days before the record date. By purchasing before the ex-date, there are two business days for settlement to occur, in accordance with regular way settlement process.

treasury stock are shares

repurchased by the company treasury stock is outstanding stock that has been repurchased by the issuer

A common investment strategy is "selling short". An investor who sells short is

selling stock that he intends to own but does not own as this point a short sale is the sale of a security that the seller does not currently own. it is regarded as an investment strategy for investors who believe the value of the security will fall

all of the following are basic types of preferred stock EXCEPT A) subordinated B) participating C) convertible D) cumulative

subordinated subordinated is a category that generally refers to debt instruments. subordinated debt has a lower claim to assets in the event of a corporate liquidating than other forms of corporate debt

the risk that most stocks will fall on a day when the largest stock market indices are down is called

systematic risk systematic risk, also referred to as market risk, is the fact that performance of individual securities will reflect the direction of the market

an investor with a growth objective would most likely purchase

tech stocks an investor with a growth objective is looking for capital appreciation, not income. blue chip stocks and utility stocks typically supply a steady stream of income and little to moderate growth. stock of a discount retailer is defensive, and is not necessarily a stock that will experience high appreciation. tech stocks typically do not play dividends but offer the opportunity for significant earnings growth

when comparing rights and warrants, which of the following statements is TRUE

the exercise price of a right is generally below the price of the stock when the right is issued; the exercise price of the warrant is generally above the price of the stock when it is issued rights are short-term instruments that allow a shareholder to purchase the stock below its market price for a period that usually expires after 4-6 weeks they are issued to existing shareholder in proportion to their ownership interest, so that if exercised, they allow the shareholder to maintain their percentage of ownership or protect against dilution. warrants are long term instruments and are often used as sweeteners in corporate bond issues. they do not protect shareholders from dilution

For most quarterly stock dividends paid in cash, the ex-dividend date is

the first business day before record date For cash dividends, ex-dividend is the first business day before record date. Stock purchased on the ex-date that settles regular-way (T+2) will not settle in time for the buyer to be the owner of record on the record date. Therefore the dividend will be paid to the seller of the shares (who is the owner of record on the record date). Investors who wish to receive the dividend must trade before the ex-date.

As a common stockholder, an investor has an opportunity to cast a vote, which means they can indicate a preference for

the people who will sit on the corporation's board Common stockholders have voting rights, which entitles them to voice an opinion on the selection of the board of directors, and other matters of corporate policy.

what date occurs one business day after the ex-dividend date

the record date the record date is one business day after the ex-dividend date

Public corporations must make sure that their stock ownership records are accurate by matching each share of stock with an owner. This task is performed by

the registrar the registrar maintains records of ownership by matching each share of stock against an ownership record. the registrar also makes sure there is no unauthorized issuance

all of the following statements are true of a callable convertible preferred issue EXCEPT that A) the convertible is issued with a lower stated dividend rate than a nonconvertible preferred B) dividend payments stop after the preferred is called C) the convertible preferred can increase in price because of the underlying security D) the stockholder must surrender the preferred when called or lose the right to par value

the stockholder must surrender the preferred when called or lose the right to par value the advantage of convertible preferred stock is the opportunity to participate in any appreciation in the value of the common stock in return for this potential benefit, the preferred pays a lower rate than nonconvertible preferred stockholders are always required to surrender the stock when it is called, but they will usually be paid a premium over par value. additionally, dividends cease on the call date.

All of the following statements are true of a callable convertible preferred issue EXCEPT that A) the convertible preferred can increase in price because of the underlying security B) the convertible is issued with a lower stated dividend rate than a nonconvertible preferred C) the stockholder must surrender the preferred when called or lose the right to par value D) dividend payments stop after the preferred is called

the stockholder must surrender the preferred when called or lose the right to par value the advantage of convertible preferred stock is the opportunity to participate in any appreciation in the value of the common stock. in return for this potential benefit, the preferred pays a lower rate than nonconvertible preferred. stockholders are always required to surrender the stock when it is called, but they will usually be paid a premium over par value. additionally, dividends cease on the call date

penny stocks present added risk to customers because of

their potential lack of liquidity penny stocks, or stocks priced below $5 per share that do not trade on an exchange, are frequently thinly traded, which means that there may be no market for the stock if customers want to liquidate their positions. because of this market risk additional disclosure must be made to all buyers of penny stock

which of the following statements is NOT accurate with respect to a warrant A) They will have value if the share price appreciates above the exercise price. B) There is no secondary market available for these securities. C) They are typically issued in connection with other securities D) They usually have longer timeframes than a right, another type of equity security.

there is no secondary market available for these securities there is an active secondary market for warrants, as well as for rights and other equity related instruments

XYZ Inc declares a .45 dividend payable on Monday July 14 to all shareholder of record as of Moday July 7. when is the ex dividend date for a regular way trade in the stock

thursday july 3 for regular way trades in equities, the ex-dividend date is ONE BUSINESS day before the record date. in this case july 4 is a holiday. therefore, the ex-date will be thursday july 3

what option does a shareholder receive under a stock rights event

to maintain proportional ownership stock rights give shareholders the right, but not the obligation, to maintain proportionate share ownership, rather than diluted when new shares are issued

the process of issuing new stock certificates and cancelling existing certificates is typically the domain of the

transfer agent this is a functionality normally performed by the transfer agent of the corporation