SIE STC Ch. 3
If an issuer is buying its own securities on an exchange, how many broker-dealers is it allowed to use?
It may only use one broker-dealer per trading session
$______ is normally the par value for preferred stock.
$100
ABC hasn't paid dividends in four years. If declared in year 5, what will a 3% non-cumulative preferred owner receive?
$3. Since the shares are non-cumulative, ABC is only required to pay the full amount for year 5.
Issuers/affiliates repurchasing their own shares may not buy the shares in the last ____ minutes of the trading day.
30 minutes
Under Rule 144, restricted stock must be held for ___ months before it can be sold.
6 months
What is callable preferred stock?
A company that issues callable preferred stock has the right to repurchase the stock (i.e., to call it back) at a specified price at some time in the future. In order to induce investors to buy the stock, the call price is typically higher than the stock's par value.
XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of XYZ common stock is: A$4,500,000 B$5,000,000 C$90,000,000 D$100,000,000
A company's market capitalization is found by multiplying the market value by the outstanding shares. $20 market value x 4,500,000 shares outstanding = $90,000,000.
A _______ period is a length of time during which shareholders and insiders are prohibited from selling their shares.
A lock-up period is a length of time during which shareholders and insiders are prohibited from selling their shares.
An investor would have the right to buy the stock of a corporation for the longest period of time by purchasing a: ARight BCall option CPut option DWarrant
A warrant
Preemptive rights give existing stockholders the right to: AMaintain their proportionate interest in a corporation BPurchase warrants CServe as directors DReceive restricted shares
A. Maintain their proportionate interest in a corporation
A Japanese manufacturer of handheld gaming devices does not want to pay for the costs associated with having its shares traded in the U.S. Which of the following statements is TRUE? AThe shares may be traded in the U.S. as an unsponsored ADR BThe shares may be traded in the U.S. as a sponsored ADR CThe shares may be traded in the U.S. but would not be known as an ADR DThe shares may not be traded in the U.S.
A. The shares may be traded in the U.S. as an unsponsored ADR
ABC Corporation's charter authorized the issuance of up to 1,000,000 shares of stock. The company has issued 100,000 shares, but has 5,000 shares of treasury stock. How many shares of ABC's stock are outstanding? A95,000 B100,000 C105,000 D900,000
A.) 95,000 shares outstanding (100,000 shares issued - 5,000 treasury stock= 95,000 shares outstanding
A French company would like to have its stock traded in the U.S. securities markets. This would most likely be accomplished through the issuance of: AEuro call options BGlobal Depository Receipts CEurodollar bonds DAmerican Depositary Receipts
American Depositary Receipts (ADRs) facilitate U.S. investment in foreign securities. The foreign securities are deposited in a branch of a U.S. bank located in that country. A receipt for those securities is then issued and traded in the U.S. as if it were the foreign security itself. A Global Depository Receipt (GDR) is incorrect because it trades in foreign markets, not in the U.S.
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: ABankers' Acceptances BEurodollar bonds CYankee bonds DAmerican 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.
Foreign stocks trade in U.S. markets as: AUnregistered securities BExchange-Traded Funds (ETFs) CAmerican Depositary Receipts (ADRs) DClosed-end mutual funds
American Depository Receipts
A method of voting that gives smaller, less substantial stockholders a greater degree of voting power over the larger, more substantial stockholders is: AStatutory voting BCumulative voting CVoting by proxy DSpecial majority voting
B). Cumulative voting
Which shares of preferred stock may increase the most if the value of the company's common stock appreciates? ACumulative preferred stock BConvertible preferred stock CParticipating preferred stock DCallable preferred stock
B. Convertible preferred stock
Common and preferred stock are similar in that: ABoth have a fixed dividend BThe dividends for both must be declared by the board of directors CBoth are guaranteed to receive an annual dividend DBoth have an equal vote on corporate issues
B. Dividends for both common and preferred stock must be declared by the board of directors.
Preemptive rights provide which of the following benefits to their holders? AThe ability to vote when they cannot attend the shareholders' meeting. BA guarantee that bonds can be purchased at a predetermined price from the issuer. CTheir proportionate ownership will not be diluted if additional shares are issued. DThat dividends will continue to be paid on their common stock.
C). Their proportionate ownership will not be diluted if additional shares are issued.
All of the following statements are TRUE regarding ADRs, EXCEPT: AThe securities are priced in dollars BThe instrument's price reflects the value of the underlying stock and currency fluctuations of the underlying issuer's host country CThe increased trading volume and enhanced liquidity in the U.S. markets lead to prices that are virtually identical to those of the underlying stock in the issuer's host country DThe securities may be listed on an exchange, and may be sponsored by the company
C. The increased trading volume and enhanced liquidity in the U.S. markets lead to prices that are virtually identical to those of the underlying stock in the issuer's host country
Which of the following statements in NOT TRUE about preemptive rights? AThey are short-term securities which allow the holder to purchase stock at a reduced price. BShareholders receive one right for each share owned. CThey DThey can trade in the secondary market.
C. They receive the same dividends as those paid to shareholders.
Which of the following represents the correct ranking of securities from longest to shortest life? ARights, options, warrants BOptions, warrants, rights CWarrants, options, rights DWarrants, rights, options
C.) Warrants, Options, Rights
What are controlled securities/control stock?
Control securities are registered securities that are acquired by control (affiliated) persons in the secondary market. Control persons may include officers, directors, or other insiders (those with more than 10% ownership) and their respective family members. Both restricted securities and control securities must be sold according to the provisions of Rule 144. -Under Rule 144, a person that intends to sell either restricted or control securities must notify the SEC by filing Form 144 at the time the sell order is placed with the broker-dealer. Once notification is made, the SEC provides a 90-day period during which the securities may be sold. -An exemption from the notice of sale requirement is available if the amount of the sale does not exceed 5,000 shares or securities with a value that does not exceed $50,000. -Under Rule 144, the maximum amount of securities that a control person of an exchange-listed company may sell over any 90-day period is the greater of 1% of the total shares outstanding or the average weekly trading volume during the four weeks preceding the filing
During a period of stable interest rates, which type of preferred stock tends to be the most volatile? ANon-cumulative BCumulative CParticipating DConvertible
Convertible preferred stock.
Last year, a company failed to pay the full dividend to its preferred shareholders, but now wants to pay a cash dividend on its common shares. Which preferred stock must be paid all of the dividends in arrears before the dividend can be paid on its common shares? AParticipating preferred BConvertible preferred CCallable preferred DCumulative preferred
Cumulative Preferred
An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions. For this investor, which of the following securities is the most suitable? ACallable preferred stock BCumulative preferred stock CParticipating preferred stock DConvertible preferred stock
Cumulative Preferred Stock
_________ stocks are associated with companies that are resistant to recession. ________ stocks are issued by companies that pay higher than average dividends _____ stocks whose earnings fluctuate with the business cycle _________ stocks are associated with major companies that have records of high earnings and dividend payments.
Defensive stocks Income stocks Cyclical stocks Blue chip stocks
True or False: All owners have the right to vote.
False. **Only common stockholders have the right to vote.**
True or False: Issuers of unsponsored ADRs are subject to SEC reporting requirements.
False. Issuers of ADRs, foreign governments, and foreign private issuers are exempt from the reporting requirements.
A company in which your client owns stock is about to make a rights offering. The client informs you that he does not plan on subscribing to the offer. You would tell the client that his proportionate ownership interest in the company would: ADecrease BIncrease CRemain unchanged DDepend on the market value of the stock
His proportionate ownership interest in the company will decrease.
What type of stock may be entitled to extra dividends?
In profitable years, participating preferred stockholders may be paid both prior to, and after, common stockholders.
A customer owns 1,000 shares of LRR preferred stock and the company is in the process of conducting a rights offering for its common stock. Under the terms of the rights offering, two rights are required to buy one new share and the subscription price is $25 (the stock's current market price is $26.50). This customer would be entitled to which of the following? A1,000 shares if the customer pays $25 per share B500 shares if the customer pays $25 per share C500 shares if the customer pays $26.50 per share DNo additional shares
No additional shares
What are the volume limitations on an affiliate or issuer repurchasing its own security?
No more than 25% of the average daily trading volume (ADTV) over a 4-week period in one day
The certificate which gives a person other than the stockholder the right to vote is referred to as a: APower of attorney BStock power CWarrant DProxy
Referred to as a Proxy
What are some rights of common shareholders?
Right of inspection Right to vote Right to receive dividends Right to evidence of ownership Right of transfer
The Electro Corporation intends to raise additional funds from its existing shareholders to avoid diluting their interest in the company. The corporation will be engaging in a: ARights offering BSecondary offering CPrimary offering DPrivate placement
Rights offering
A corporation has a 9% cumulative preferred stock issue outstanding. The company paid a $7 dividend in 2012 and $8 in 2013. If the company wants to pay a common stock dividend in 2014, the cumulative preferred stockholders must first receive a dividend of: A $12 B$9 C$3 D0
Since it is a cumulative issue, any dividend that is not paid must be made up prior to a common dividend being paid. If a common dividend is to be paid in 2014, the cumulative preferred stockholders must first receive $12 ($2 for 2012 plus $1 for 2013 plus $9 for 2014).
A corporation's shareholders must vote for: ACash dividends BStock dividends CStock splits DStopping dividends
Stock Splits
The formula for finding conversion ratio on convertible preferred stock is: ______ ÷ ____________
The formula for finding conversion ratio is: Par ÷ Conversion Price (par for preferred is $100)
What is the purpose of a lock-up provision?
To prevent large shareholders from selling immediately after an IPO, since it could cause the share price to fall.
True or False: A stockholder is able to vote for a director, but not an officer.
True
True or False: A FINRA member firm must disclose whether it has the ability to influence the issuer of securities.
True. This is referred to as a control relationship which must be disclosed to investors.
What is restricted stock?
Unregistered stock that is typically bought through a private placement before shares are offered publicly
Which of the following statements is TRUE regarding warrants? AWarrants receive dividends when the common stock receives dividends BWarrants can be perpetual CWarrants are only issued by blue-chip corporations DWarrants are guaranteed by the Options Clearing Corporation
Warrants can be perpetual in their duration
The security with the longest expiration date would normally be a: APut BCall CWarrant DRight
Warrants have the longest expiration dates
A customer owns a warrant with a strike price of $50 and the price of the underlying security has increased from $25 to $40. The current intrinsic value of the warrant is: A$25 BZero C$20 D$10
Zero. The intrinsic value of any derivative (warrant, option, or right) is equal to the security's in-the-money amount. A warrant is in-the-money when the market value of the underlying security is above the strike price. In this question, since the market price of the underlying security is below the strike price, the warrant is out-of-the-money and has no intrinsic value.
