Chapter1: Equities
A customer owns 1,000 common shares of ABC Corporation. Which of the following actions will dilute the shareholders' equity? A ABC declares a 5% stock dividend B ABC declares that it will call its convertible preferred stock, which is currently trading at a premium C ABC declares that it will issue an additional $100,000,000 in bonds D ABC declares a 4:1 stock split Review
ABC declares that it will call its convertible preferred stock, which is currently trading at a premium
ABC Corporation has declared a rights offering to stockholders of record on Friday, December 10th. Under the offer, shareholders need 10 rights to subscribe to 1 new share at a price of $19. Fractional shares can be rounded up to purchase 1 full share. As of the ex date, the stock is trading at $29. The value of the right is: A $.90 B $1.00 C $1.10 D $1.25
B $1.00
A customer gives a power of attorney to a caretaker to vote his shares on his behalf at the company's annual meeting. Which statement is TRUE? A This is known as a proxy and once given, it cannot be revoked B This is known as a proxy which may be revoked prior to the annual meeting C This is known as a voting trust and once given, it cannot be revoked D This is known as a voting trust which may be revoked prior to the annual meeting
B This is known as a proxy which may be revoked prior to the annual meeting
A corporation has been in financial difficulty and its stock price has fallen to an extremely low level. To avoid delisting, it wishes to raise its stock and it wants to conserve its cash. To do this, it should declare a: A stock split B reverse stock split C stock buy-back program D cash dividend on outstanding shares
B reverse stock split
X Corporation stock has been trading at $1,200 per share recently and trading volume has fallen to record lows. To increase trading volume, the X Corporation may: A perform a reverse split to reduce the number of shares outstanding B suspend trading for a month period to create a market for its stock C split the stock three-for-one to make its price more attractive D reverse split the stock one-for-three to increase its priceC split the stock three-for-one to make its price more attractive
C split the stock three-for-one to make its price more attractive
Which of the following are functions of the transfer agent? I Mailing dividend payments to shareholders II Canceling old shares and issuing new shares III Preparing and mailing proxies IV Setting the Declaration Date A I and II B III and IV C I, II, III D I, II, III, IV
C I, II, III
All of the following are functions of the transfer agent EXCEPT: A Mailing dividend payments to shareholders B Preparing and mailing proxies C Setting the Declaration Date D Canceling old shares and issuing new shares
C Setting the Declaration Date
In a corporate liquidation, the last to get paid is: A Unpaid wages and taxes B Bondholders C Preferred stockholders D Common stockholders
Common stockholders
Voting of the common stockholder is required for all of the following EXCEPT: A When a corporation wishes to issue convertible securities B When a shareholder decides to accept a tender offer for the company's shares C When a corporation declares a stock split D When a corporation declares a cash dividend
D When a corporation declares a cash dividend
An investor has 300 shares and is voting for 3 open board seats. Which statement is correct if the election employs the cumulative voting method? A Cumulative voting gives the shareholder a disproportionate voting weight and allows her to cast a maximum of 900 votes for a favored director. B Cumulative voting gives the shareholder a disproportionate voting weight and allows her to cast a maximum of 300 votes for a favored director. C Cumulative voting gives the shareholder a proportionate voting weight and allows her to cast a maximum of 900 votes for a favored director. D Cumulative voting gives the shareholder a proportionate voting weight and allows her to cast a maximum of 300 votes for a favored director.
A Cumulative voting gives the shareholder a disproportionate voting weight and allows her to cast a maximum of 900 votes for a favored director.
A client owns 100 shares of COSMO Company common stock. The client receives a notice that COSMO has declared a 10% stock dividend. What does this mean? A The client will receive 10 additional shares of COSMO stock B The client's aggregate stock holding will increase in value by 10% C The client must return 10 shares of stock to COSMO D The client's aggregate stock holding will decrease in value because of the additional shares
A The client will receive 10 additional shares of COSMO stock
Common stockholders do not have which right? A The right to review internal Board of Director communications B The right to maintain proportionate ownership in the company C The right to vote for the Board of Directors D The right to transfer of shares at will
A The right to review internal Board of Director communications
The transfer agent is typically responsible for all of the following functions EXCEPT: A maintaining the integrity of the record of all shareholder names and addresses B acting as disbursement agent for the corporation C issuing new stock certificates D canceling old stock certificates
A maintaining the integrity of the record of all shareholder names and addresses (The transfer agent cancels old shares and issues new shares. It is the responsibility of the registrar to maintain the shareholder list, and to ensure that the number of shares transferred from one shareholder to another always matches. The transfer agent typically performs the role of paying agent as well. When a corporation makes a distribution, the paying agent actually prepares and mails the checks (using the current shareholder list provided by the registrar - the registrar is responsible for maintaining the integrity of the shareholder list).
All of the following actions will dilute shareholders' equity EXCEPT: A payment of a stock dividend B conversion of convertible preferred stock C exercise of stock options granted to officers D issuance of additional common shares
A payment of a stock dividend Dilution of an individual stockholder's equity does not occur if there is a stock dividend or stock split. The shareholder receives more shares worth proportionately less. However, in total, the shareholder has the same percentage interest in the corporation.
Common dividends are usually declared: A quarterly by the Board of Directors of the company B semi-annually by the Board of Directors of the company C quarterly by the Chief Executive Officer of the company D semi-annually by the Chief Executive Officer of the company
A quarterly by the Board of Directors of the company
Which function would be performed by the registrar? A verifying the record of all shareholder names and addresses B acting as disbursement agent for the corporation C issuing new stock certificates D canceling old stock certificates
A verifying the record of all shareholder names and addresses
In a rights offering, shareholders who subscribe make payment to the: A stand-by underwriter B rights agent for the issuer C brokerage firm D trustee
B. In a rights offering, a company is attempting to sell additional shares directly to its existing shareholders. The company hires a "rights agent" to handle the mechanics of the offer, typically a commercial bank.
The Board of Directors of a company will set which of the following? I Declaration date II Record date III Ex date IV Payable date A I and II B III and IV C I, II, IV D I, II, III, IV Review
C I, II, IV Ex- date is set by FINRA
PDQ Corporation has declared a rights offering to stockholders of record. The company has 5,000,000 shares outstanding and is selling an additional 1,000,000 shares via the rights offer. Which statements are TRUE regarding a customer who owns 500 shares of PDQ stock? I The customer will receive 100 rights II The customer will receive 500 rights III The customer may buy 100 shares IV The customer may buy 500 shares A I and III B I and IV C II and III D II and IV
C II and III
If a company declares and pays a 10% stock dividend, an existing shareholder with 100 shares will have: A more than 100 shares at an increased price per share B less than 100 shares at an increased price per share C more than 100 shares at a reduced price per share D less than 100 shares at a reduced price per share
C more than 100 shares at a reduced price per share
All of the following are methods of dividend payment EXCEPT: A cash B stock C rights D product
C rights
All of the following actions by a corporation will affect an individual common shareholder's equity EXCEPT: A Issuance of additional common shares B Conversion of convertible preferred stock C Repurchase of common shares D Declaration of a stock dividend or stock split
Declaration of a stock dividend or stock split
A customer owns 107 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 10 rights tendered, a shareholder may purchase one additional share at $22 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? A The shareholder can buy a maximum of 10 shares by paying $220 B The shareholder can buy a maximum of 11 shares by paying $242 C The shareholder can buy a maximum of 107 shares by paying $2,354 D The shareholder can buy a maximum of 110 shares by paying $2,420
The best answer is B. The terms of the rights offering are that fractional holdings are rounded up to buy 1 additional share. This person owns 107 shares and thus, will receive 107 rights. 107 rights / 10 rights per share = 10.7 shares, which is rounded up to 11 shares @ $22 each = $242 necessary to subscribe.
A company has 1,000,000 shares outstanding. It plans to issue 2,000,000 additional common shares to raise funds to build a new manufacturing facility. Your client owns 50,000 shares of this company. How many rights will the customer receive? A 25,000 B 50,000 C 75,000 D 100,000
The best answer is B. The customer receives 1 right per shares, so he or she receives 50,000 rights.
ABC Corporation has declared a cash dividend to stockholders of record on Thursday, October 24th. The last day to buy ABC shares BEFORE they go ex dividend is? A Friday, October 18th B Monday, October 21st C Tuesday, October 22nd D Wednesday, October 23rd
The best answer is C. The regular way ex date is 1 business day prior to the record date. The record date is Thursday, October 24th, therefore the ex date is Wednesday, October 23rd. To buy the shares before they go ex dividend, the shares must be purchased before Wednesday, October 23rd, meaning they must be purchased on Tuesday, October 22nd.
The regular way ex date for a dividend payable to stockholders of record on Monday, June 11th, is: A Tuesday, June 5th B Wednesday, June 6th C Thursday, June 7th D Friday, June 8th
The best answer is D. The regular way ex date is set at 1 business day prior to record date. The ex date is the very first date the stock trades without the value of the dividend. If the record date is Monday, June 11th, 1 business day prior is Friday, June 8th.
ABC Corporation has declared a rights offering to stockholders of record on Friday, December 10th. Under the offer, shareholders need 10 rights to subscribe to 1 new share at a price of $19. Fractional shares can be rounded up to purchase 1 full share. As of the ex date, the stock is trading at $24. The value of the right is: A $.45 B $.50 C $.55 D $1.00 Review
The value of a right "ex rights" is: $24 - $19 = $5 = $.50 Value "Ex Rights"1010 Notice that the market price of $24 was already adjusted on the ex date by the exchange where the stock trades. Do not try and reduce the price again!
