Investment Vehicles book 2

Which statements are TRUE about shareholder rights? I Common shareholders have preemptive rights II Preferred shareholders have preemptive rights III Common shareholders have voting rights IV Preferred shareholders have voting rights A. I and III B. I and IV C. II and III D. II and IV

a

Which statements are TRUE about callable bonds quoted on a yield basis? I Discount bonds are priced based on yield to maturity II Discount bonds are priced based on yield to call III Premium bonds are priced based on yield to maturity IV Premium bonds are priced based on yield to call A. I and III B. I and IV C. II and III D. II and IV

b

A convertible bond is convertible into common stock at a 32:1 ratio. The common stock is currently trading at $30. The bond is currently trading at $980. What is the conversion price? A. 30.00 B. 30.63 C. 31.25 D. 32.67

c

Dividends on preferred stock may only be paid in: A. Common shares of another issuer B. Common shares of the same issuer C. Cash D. Preferred stock of the same issuer

c

Zero coupon bonds: I pay interest semi-annually II pay interest at maturity III are bought at a discount and mature at par IV are bought at a par and mature at a premium A. I and III B. I and IV C. II and III D. II and IV

c

Which of the following statements are true about the Government National Mortgage Association Pass-Through Certificates? I GNMA is empowered to borrow from the Treasury to pay interest and principal if necessary II Interest payments are taxable at the Federal, State and Local levels III Certificates are issued in minimum units of $25,000 IV The credit rating is considered the highest of any agency security A. I and II B. I and III C. II, III, IV D. I, II, III, IV

d

Which of the following terms applies to common stock? A. convertible B. redeemable C. non-negotiable D. non-callable

d

A company that has issued first mortgage bonds is declared in default by the trustee. Which statement is TRUE? A. The bondholders have legal claim to the property backing the bond; and may sell that property to satisfy the unpaid obligation B. The bondholders have legal claim to all property of the failed company; and may attach and sell any, or all, of that property C. The bondholders have first claim to all assets of the failed company that have not been pledged D. The bondholders are general creditors of the failed company

a

A corporation has issued 50,000,000 shares of common stock at $.50 par. The corporation has 10,000,000 shares of Treasury Stock on its books. The aggregate par value of the outstanding shares is: A. $20,000,000 B. $40,000,000 C. $80,000,000 D. $100,000,000

a

A method of valuing a common stock is: A. dividend discount B. internal rate of return C. yield to maturity D. expected return

a

All of the following actions will dilute the 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

American Depositary Receipts would trade on all of the following exchanges EXCEPT the: A. London Stock Exchange B. New York Stock Exchange C. NASDAQ Stock Market D. American Stock Exchange

a

Common dividends are usually: I declared quarterly II declared semi-annually III paid quarterly IV paid semi-annually A. I and III B. I and IV C. II and III D. II and IV

a

Federal Farm Credit System bonds are backed by all of the following issuers EXCEPT: A. Federal Home Loan Banks B. Federal Land Banks C. Federal Intermediate Credit Banks D. Banks for Cooperatives

a

The smallest denomination available for Treasury Bills is: A. $100 B. $1,000 C. $10,000 D. $100,000

a

The type of stock option most often granted to key employees and officers of companies is a(n): A. qualified stock option B. non-qualified stock option C. accredited stock option D. non-accredited stock option

a

Treasury Bills are issued by the U.S. Government in which form? A. Book Entry B. Bearer C. Registered to Principal Only D. Registered to Principal and Interest

a

Treasury Notes are issued by the U.S. Government in which form? A. Book Entry B. Bearer C. Registered to Principal Only D. Registered to Principal and Interest

a

Treasury bonds: I are issued in minimum $100 denominations II are issued in minimum $10,000 denominations III mature at par IV mature at par plus accrued interest A. I and III B. I and IV C. II and III D. II and IV

a

What is a Yankee Bond? A. A foreign bond traded in the U.S. market B. A foreign bond traded in a foreign market C. A U.S. bond traded in a foreign market D. A U.S. bond traded in the U.S. market

a

When comparing convertible to non-convertible corporate bonds, convertible bonds have: I Lower yields II Higher yields III Price appreciation potential based on the market price of the common stock IV No price appreciation potential based upon the market price of the common stock A. I and III B. I and IV C. II and III D. II and IV

a

When evaluating the market price of a common share, why would the Price to Sales ratio be used instead of the Price to Earnings ratio? A. Because the Price to Sales ratio can be used to value a company that does not have earnings or that has losses, while the Price to Earnings ratio cannot B. Because the Price to Sales ratio can be distorted by a non-recurring charge while this has no effect on the Price to Earnings ratio C. Because the calculation of the Price to Sales ratio is simpler than the calculation of the Price to Earnings ratio D. Because the Price to Sales ratio is a more reliable measure for computing share value as compared to the Price to Earnings ratio

a

Which of the following is the most likely purchaser of a STRIP? A. Pension fund B. Money market fund C. Individual seeking current income D. Individual wishing to avoid purchasing power risk

a

Which of the following statements are TRUE when comparing bonds and preferred stock? I Both bonds and preferred stock have a fixed payout rate II Bonds have a fixed payout rate; preferred stock does not III Both bonds and preferred stock can be convertible into shares of common stock IV Bonds can be convertible; preferred stock cannot A. I and III B. I and IV C. II and III D. II and IV

a

XYZ Corporation has declared a rights offering to stockholders of record on Wednesday, November 15th. Under the offer, shareholders need 5 rights to subscribe to 1 new share at a price of $24. Fractional shares can be rounded up to purchase 1 full share. A customer owning 200 shares wishes to subscribe. The market price of the stock is currently $34. The customer can buy: A. 40 shares for $960 B. 40 shares for $1,360 C. 200 shares for $4,800 D. 200 shares for $6,800

a

A convertible bond is convertible into common stock at a 32:1 ratio. The common stock is currently trading at $30. The bond is currently trading at $980. What is the bond's parity price? A. $940 B. $960 C. $980 D. $1,000

b

A corporation has issued 20,000,000 shares of common stock at $2 par. The corporation has 5,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is: A. $10,000,000 B. $30,000,000 C. $40,000,000 D. $50,000,000

b

A corporation issues $50 par convertible preferred stock, convertible at $10 per share, when the market price of the common is currently $5. Which statement is true? A. The conversion ratio is 10:1 B. The conversion ratio is 5:1 C. The conversion ratio is 2:1 D. The conversion ratio cannot be determined

b

A customer bought a $1,000 par convertible subordinated debenture at par, convertible into common at $31.25 per share. If the bond's market price increases by 20%, the conversion ratio will be: A. 31.25:1 B. 32.00:1 C. 37.50:1 D. 38.40:1

b

A customer has bought a "book entry" bond which pays interest semi-annually. The customer will receive interest payments: A. from the paying agent once a year B. from the paying agent twice a year C. by clipping coupons once a year D. by clipping coupons twice a year

b

A customer holds 100 shares of ABC Corp $100 par convertible preferred stock convertible at a 10 to 1 ratio. If ABC declares and pays a 10% stock dividend, then as of the payable date, the customer will now have: A. 90 shares of ABC preferred stock B. 100 shares of ABC preferred stock C. 100 shares of ABC preferred stock and 10 shares of ABC common stock D. 110 shares of ABC preferred stock

b

A customer holds 100 shares of ABC Corp $100 par non-convertible preferred stock. If ABC declares and pays a 10% common stock dividend, then as of the payable date, the customer will now have: A. 90 shares of ABC preferred stock B. 100 shares of ABC preferred stock C. 100 shares of ABC preferred stock and 10 shares of ABC common stock D. 110 shares of ABC preferred stock

b

A security which gives the holder an undivided interest in a pool of mortgages is known as a(n): A. equity real estate investment trust B. pass through certificate C. first mortgage bond D. mortgage real estate investment trust

b

ABC 8% $100 par preferred is trading at $105 in the market. The current yield is: A. 6.6% B. 7.6% C. 8.6% D. 10.6%

b

All of the following statements are true regarding equipment trust certificates ("ETCs") EXCEPT: A. Equipment trust certificates are secured by specified corporate assets B. Default of ETCs is common during recessionary periods C. Equipment trust certificates are commonly issued by transportation companies D. Equipment trust certificates are issued in serial maturities

b

An advantage of owning common stock is: A. it always receives quarterly dividends B. the ease of transferring ownership of shares C. not having to vote by proxy at the annual meeting D. residual claim to assets in a liquidation after preferred stockholders and bondholders

b

Callable preferred stock is likely to be redeemed by the issuer if: A. interest rates rise B. interest rates fall C. the common stock price rises D. the common stock price falls

b

Common shareholders have the right to vote on all of the following EXCEPT: A. Changes in the number of authorized shares B. Cash dividends C. Board of Directors D. Stock splits

b

Common stockholders have all of the following "rights" EXCEPT: A. Right to vote for the Board of Directors B. Right to vote for the annual dividend rate C. Pre-emptive right D. Rights to corporate assets upon dissolution

b

Ford Motor Company has issued 8% convertible debentures, convertible at a 10:1 ratio. Currently the debenture is trading at 102. The stock is trading at 98. Which statements are TRUE? I The conversion price is $100 II The conversion price is $102 III The parity price of the common stock is 98 IV The parity price of the common stock is 102 A. I and III B. I and IV C. II and III D. II and IV

b

Interest payments on Ginnie Mae pass-through certificates are made: A. weekly B. monthly C. semi-annually D. annually

b

PDQ Company $10 par common stock is currently trading at $40. PDQ is currently paying a common dividend of $.20 per share quarterly. The current yield of PDQ stock is: A. 0.5% B. 2.0% C. 5.0% D. 8.0%

b

Treasury Bills are issued for all of the following initial maturities EXCEPT: A. 4 weeks B. 8 weeks C. 13 weeks D. 26 weeks

b

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 B. I, II, III C. I, II, IV D. I, II, III, IV

b

Which is considered to be a direct obligation of the U.S. Government? A. Federal National Mortgage Association Pass Through Certificates B. Government National Mortgage Association Pass Through Certificates C. Federal National Mortgage Association Bonds D. Federal Home Loan Bank Bonds

b

Which of the following influences the market price of common stock? A. The par value of the shares B. Investor expectations about the future of the company C. Stated value of the shares D. Book value of the shares

b

Which of the following is an original issue discount obligation? A. GNMA certificate B. Treasury bill C. U.S. Government bond D. FNMA bond

b

Which of the following statements are true regarding Treasury Stock? I Treasury Stock receives dividends II Treasury Stock votes III Treasury Stock reduces the number of shares outstanding IV Treasury Stock purchases are used to increase reported Earnings Per Share A. I and II B. III and IV C. II, III, IV D. I, II, III, IV

b

Which statements are TRUE regarding Treasury Inflation Protection securities? I In periods of deflation, the amount of each interest payment will decline II In periods of deflation, the amount of each interest payment is unchanged III In periods of deflation, the principal amount received at maturity will decline below par IV In periods of deflation, the principal amount received at maturity is unchanged at par A. I and III B. I and IV C. II and III D. II and IV

b

A corporation can pay a dividend in which of the following fashions? I Distributing tax credits to shareholders II Distributing the stock of another company to shareholders III Making a stock distribution to shareholders IV Making a cash distribution to shareholders A. I and II only B. I, III, IV C. II, III, IV D. I, II, III, IV

c

A customer wishes to buy a security that provides monthly payments for his retirement. Which of the following is suitable? A. Treasury Bonds B. Income Bonds C. GNMA Pass Through Certificates D. Treasury Notes

c

A stock with a P/E Ratio of 10 has just closed at $50 per share. This means that the approximate EPS for this company is: A. $.20 B. $2.00 C. $5.00 D. $10.00

c

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

c

All of the following are likely to purchase dealer commercial paper EXCEPT: A. Insurance Companies B. Trust Companies C. Individuals D. Open-end Investment Companies

c

All of the following are terms associated with preferred stock EXCEPT: A. callable B. cumulative C. redeemable D. convertible

c

All of the following are true about preferred stock EXCEPT: A. Preferred dividends are paid before common B. In most cases dividends are paid semi-annually C. Corporations must pay preferred dividends D. Preferred shareholders are paid before common shareholders upon liquidation of a corporation

c

All of the following corporate bonds are secured EXCEPT: A. equipment trust certificates B. second mortgage bonds C. sinking fund debentures D. collateral trust certificates

c

All of the following statements are true about American Depositary Receipts EXCEPT: A. ADRs facilitate domestic trading of foreign securities B. ADR holders receive dividends C. ADR holders have voting and pre-emptive rights D. ADRs are issued by domestic banks

c

All of the following statements are true about GNMA and FNMA securities EXCEPT: A. GNMA and FNMA make a secondary market in mortgages B. GNMA and FNMA issue pass through certificates C. GNMA and FNMA pass through certificates are directly backed by the U.S. Government D. GNMA and FNMA pass through certificates pay interest and principal monthly

c

All of the following statements are true about both bonds and preferred stock EXCEPT: A. Both bonds and preferred stock are "Senior" securities over common stock in a dissolution B. Both bonds and preferred stock can be convertible C. Payments to both bondholders and preferred stockholders are subject to approval of the Board of Directors D. Both bonds and preferred stock have a stated fixed payment rate

c

An advantage of ADRs is that they are: A. less expensive than going to a foreign exchange and purchasing the shares there B. sold through U.S. branches of foreign banks in small denominations C. a way of buying foreign stocks easily in the U.S. D. a simple way for foreigners to buy U.S. Government securities

c

As interest rates rise, preferred stock prices will: A. remain unaffected B. rise C. fall D. fluctuate

c

Common stockholders have all of the following rights EXCEPT: A. voting for the Board of Directors B. transferring share ownership without restriction by the issuer C. inspecting minutes of executive meetings D. maintaining proportionate ownership in the company

c

Common stockholders have which of the following rights? I Inspecting minutes of executive meetings II Maintaining proportionate ownership in the company III Voting for the Board of Directors IV Transferring share ownership without restriction by the issuer A. I and III only B. I, II, IV C. II, III, IV D. I, II, III, IV

c

Cumulative voting is considered to be an advantage to the: A. large investor B. institutional investor C. small investor D. novice investor

c

Dividends are paid to holders of: A. Warrants B. Treasury Stock C. ADRs D. Rights

c

Federal Farm Credit System issues include: I Short term notes issued at par II Short term original issue discount notes III Long term bonds issued at par IV Long term original issue discount bonds A. I and III B. I and IV C. II and III D. II and IV

c

Preferred stock market valuation is based primarily upon: A. future earnings expectations for the issuer B. short term market interest rate levels C. long term market interest rate levels D. future dividend payment expectations for the issuer

c

The Federal Farm Credit System: I issues equity securities II issues long term loans secured by mortgages on farm property III issues short term loans to farmers for agricultural purposes A. I only B. I and II only C. II and III only D. I, II, III

c

The exchange where a security trades sets which of the following dates? A. declaration date B. record date C. ex date D. payable date

c

The minimum denomination on a mortgage backed pass through certificate is: A. $1,000 B. $10,000 C. $25,000 D. $100,000

c

Treasury STRIPS are quoted by dealers: A. as a percentage of par in minimum increments of $.10 B. as a percentage of par in minimum increments of 1/8ths C. as a percentage of par in minimum increments of 1/32nds D. on a yield to maturity basis

c

Which investment gives the GREATEST protection against purchasing power risk? A. 10 year Double Barreled Bonds B. 10 year Guaranteed Bonds C. 10 year Treasury "TIPS" D. 10 year Treasury "STRIPS"

c

Which of the following agencies issuing mortgage backed pass through certificates is (are) restricted to purchasing conventional mortgages that are not VA or FHA insured? I Fannie Mae II Ginnie Mae III Freddie Mac A. I only B. II only C. III only D. I, II, III

c

Which of the following 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 A. I and III B. I and IV C. II and III D. II and IV

c

Which of the following are true statements about Treasury Bills? I T-Bills can be purchased directly at weekly auction II T-Bills trade at a discount from par III T-Bills have a maximum maturity of 2 years IV T-Bills are the most actively traded money market instrument A. I and III only B. II and IV only C. I, II, IV D. I, II, III, IV

c

Which of the following do NOT have an equity position? I Convertible preferred shareholders II Preferred shareholders III Convertible debenture bondholders IV Subordinated debenture bondholders A. I, II B. I, III, IV C. III, IV D. I, II, III, IV

c

Which of the following statements are TRUE regarding equipment trust certificates ("ETC"s)? I Equipment trust certificates are issued in serial maturities II Equipment trust certificates are secured by specified corporate assets III Default of ETCs is common during recessionary periods IV Equipment trust certificates are commonly issued by transportation companies A. I and III only B. II and IV only C. I, II, and IV D. I, II, III, IV

c

Which of the following statements are TRUE when comparing bonds and preferred stock? I Payments to bondholders are subject to approval of the Board of Directors II Payments to preferred stockholders are subject to approval of the Board of Directors III Bonds are considered senior securities over common stock in a corporate dissolution IV Preferred stock is considered to be a senior security over common stock in a corporate dissolution A. I and III only B. II and IV only C. II, III, IV D. I, II, III, IV

c

Which statements are TRUE regarding ADRs? I Dividends are declared by the issuer of the underlying stock in U.S. dollars II Dividends are declared by the issuer of the underlying stock in the foreign currency III Receipt holders receive dividend payments in U.S. dollars IV Receipt holders receive dividend payments in the foreign currency A. I and III B. I and IV C. II and III D. II and IV

c

Which statements are always TRUE about Treasury Bonds? I Treasury Bonds are traded in 32nds II Treasury Bonds are quoted at a discount to par value III Treasury Bonds are issued in either bearer or registered form IV Treasury Bonds have minimum maturity of more than 10 years A. I and II only B. II and IV only C. I and IV only D. I, III and IV

c

XYZ Company has issued 10%, $100 par non-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: A. 0 B. $5 C. $10 D. $15

c

A corporation has issued $10,000,000 of 7 1/4%, 20 year, $1,000 par, convertible debentures, convertible at a ratio of 25:1. The bond is currently trading at 101, while the company's common stock is at 38. The conversion price per share is: A. $25 B. $25.25 C. $26.32 D. $40

d

A corporation has issued 10% convertible debentures, convertible into 40 shares of common stock. The current market price of the common stock is $25.25. If the bonds are trading at 10 points above parity, they are priced at: A. 81 B. 91 C. 101 D. 111

d

A corporation has issued 10%, $1,000 par convertible debentures, convertible at $31.25. The common stock is currently trading at $35. If the bond and the common are trading at parity, a customer purchasing 5M of the bonds will pay.(find conversion ratio) A. $3,500 B. $4,800 C. $5,000 D. $5,600

d

A customer owns 400 shares of ABC stock. ABC is having a rights offering where 20 rights are needed to subscribe to 1 new share. The customer will receive: A. 1 right B. 20 rights C. 100 rights D. 400 rights

d

All of the following securities represent ownership of a corporation EXCEPT: A. common stock B. preferred stock C. convertible preferred stock D. warrants

d

All of the following statements are true about the Federal National Mortgage Association Pass-Through Certificates EXCEPT: A. FNMA is a publicly traded company B. interest payments are subject to state and local tax C. certificates are issued in minimum units of $25,000 D. the credit rating is considered the highest of any agency security

d

All of the following statements are true regarding the effect of the purchase of Treasury Stock EXCEPT: A. the number of outstanding shares is reduced B. the earnings per share is increased C. the market price of the stock will increase D. the number of authorized shares will be reduced

d

Corporate debentures are backed by: A. real estate B. equipment C. portfolio of marketable securities D. full faith and credit

d

In a corporate liquidation, the last to get paid is: A. Unpaid wages and taxes B. Bondholders C. Preferred stockholders D. Common stockholders

d

The common stockholder has all of the following rights EXCEPT: A. Voting rights B. Pre-emptive rights C. Dividend rights D. Management rights

d

Treasury notes and bonds are: A. bearer securities B. registered to interest only C. registered to principal only D. fully registered in book entry form

d

Which U.S. Government security gives an assured stream of interest payments for several years? A. Treasury Receipt B. Treasury STRIP C. Treasury Bill D. Treasury Bond

d

Which are TRUE statements regarding government agencies and their obligations? I Ginnie Mae is a publicly traded company II Ginnie Mae is a U.S. Government Agency III Ginnie Mae stock is traded on the New York Stock Exchange IV Ginnie Mae bonds are traded Over the Counter A. I and III B. I and IV C. II and III D. II and IV

d

Which of the following investments is issued with a stated coupon rate and with a maximum maturity of 30 years? A. Treasury Notes B. Treasury Stock C. Treasury Strips D. Treasury Bonds

d

Which of the following statements are TRUE regarding convertible bond issues? I At the time of issuance, the conversion price is set at a premium to the stock's current market price II When the stock price is at a premium to the conversion price, the conversion feature has intrinsic value. III For the conversion feature to have value, the stock's price must move up in the market after issuance IV Convertible bonds usually have lower yields than bonds without the conversion feature A. I and II only B. III and IV only C. I, III, IV D. I, II, III, IV

d

Which security of the same issuer is likely to give the highest current yield? A. warrant B. common stock C. convertible preferred stock D. non-convertible preferred stock

d

Which statement is best regarding participating preferred stock? A. The dividend rate is fixed B. The dividend rate varies depending on the decision of the Board of Directors C. The dividend rate is fixed as to maximum but not as to minimum D. The dividend rate is fixed as to minimum but not as to maximum

d

Which statements are TRUE when comparing Treasury Notes to Treasury Bills? I Treasury Bills have a longer initial maturity II Treasury Notes have a longer initial maturity III Treasury Bills pay interest semi-annually IV Treasury Notes pay interest semi-annually A. I and III B. I and IV C. II and III D. II and IV

d