Equities Special Securities and Financial Listings - question 1 of 6
All of the following statements are true regarding warrants EXCEPT: Correct Answer A. Warrants generally have a life of 2 months Incorrect Answer B. At issuance, the exercise price of the warrant is set higher than the current market price of the underlying common stock StatusC C. The price of the warrant will vary with the price movements of the underlying stock StatusD D. The price of the warrant will vary depending upon the time to expiration of the warrant
The best answer is A. Warrants generally have a life of 5 years - rights have very short lives (e.g., 1 or 2 months). At issuance, the exercise price of the warrant is set higher than the current market price of the underlying common stock. Thus, the warrant is issued at a price that is "out the money" and the market price of the stock must rise to at least this level for it to be worthwhile to exercise the warrant. The price of the warrant will vary with the price movements of the underlying stock. As the stock's price rises, the warrant becomes more valuable; as the stock's price falls, the warrant becomes less valuable. The price of the warrant will vary depending upon the time to expiration of the warrant. The greater the time to expiration, the greater the value of the warrant, since there is a greater probability that the price will rise in the remaining time to expiration.
DIVIDEND PAYMENTS 2016 STANDARD and POOR'S DIVIDEND RECORD Div$. Dec. Ex. Stk Rec. Pay. Acme Mot. - Cmn p$1 *Rate - .90Q Pd '16 3.00 '15 2.50 * .75 Dec 13 Jan 17 Fri., Jan 19 Jan 30 '16 .75 Mar 20 Apr 17 Fri., Apr 19 Apr 30 .75 Jun 20 Jul 17 Fri., Jul 19 Jul 31 .75 Sep 25 Oct 16 Fri., Oct 18 Oct 30 .90 Dec 18 Jan 15 Fri., Jan 17 Jan 30 '17 When is the earliest date that the stock can be sold regular way and still allow the customer to receive the dividend payable Jan 30th, 2016? Incorrect Answer A. January 16th Correct Answer B. January 17th StatusC C. January 18th StatusD D. January 19th
The best answer is B. The ex date for the dividend payable January 30th, 2016 is set at January 17th. If the stock is sold prior to this date, the new buyer would be on record to receive the dividend. If the stock is sold on the ex date or later, the seller is on the record books for the dividend payment.
PDQ Company $10 par common stock is currently trading at $40. PDQ is currently paying a quarterly common dividend of $.90 per share. The current yield of PDQ stock is: StatusA A. 2.25% Incorrect Answer B. 4% Correct Answer C. 9% StatusD D. 10%
The best answer is C. Yields are based on annual returns. This stock is paying a $.90 dividend quarterly, so the annual dividend rate is $3.60. The formula for current yield is: *Annual Income/Market Price = Current Yield" $3.60/$40 = 9%
American Depositary Receipts pay dividends in: StatusA A. Eurodollars StatusB B. European currency Units Incorrect Answer C. Foreign Currency Correct Answer D. U.S. Dollars
The best answer is D. American Depositary Receipts pay dividends in U.S. Dollars only. The dividends are declared and paid in the foreign currency by the issuer. The bank that issues the ADR exchanges the dividend into U.S. Dollars and pays this to the U.S. ADR holders.
Which of the following statements about warrants are TRUE? I At issuance, warrants are "out of the money" II Warrant valuation is influenced by the life of the instrument III Warrant valuation is directly influenced by the valuation of the company's common stock IV Warrant valuation reflects market expectations for future earnings of the company Incorrect Answer A. I and IV only StatusB B. II and III only StatusC C. I, II, IV Correct Answer D. I, II, III, IV
The best answer is D. At issuance, warrants typically have exercise prices well above the current market price of the common stock, and therefore are "out of the money". The other statements are true. Warrant valuation is directly influenced by its life - the longer the warrant, the greater its value. It is also influenced by the valuation of the company's common stock price - the higher the market value of the common, the higher the warrant's value. Finally, it is influenced by market expectations for future corporate earnings, and hence the future price of the common stock.
All of the following securities represent ownership of a corporation EXCEPT: Incorrect Answer A. common stock StatusB B. preferred stock StatusC C. convertible preferred stock Correct Answer D. warrants
The best answer is D. Warrants do not represent ownership of a corporation; only if they are exercised do they represent ownership, since exercise results in the purchase of the common stock of the issuer. Common stock and preferred stock are both securities that represent ownership.
