Series 7 Unit 1 test

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ABC Corporation has a 10% noncumulative preferred stock outstanding at $100 par value. Two years ago, ABC omitted its preferred dividend, and last year, it paid a dividend of $5 per share. To pay a dividend to common shareholders, each preferred share must be paid a dividend of A) 10 B) 5 C) 25 D) 15

A) 10 Because this is noncumulative preferred stock, the company must pay only this year's full stated dividend of $10 per share before paying dividends to the common shares.

GHI currently has earnings of $4 and pays a $.50 quarterly dividend. If GHI's market price is $40, the current yield is A) 5% B) 15% C) 1.25% D) 10%

A) 5% The quarterly dividend is $.50, so the annual dividend is $2; $2 /· $40 market price = 5% current yield.

Which of the following statements regarding the Committee on Uniform Securities Identification Procedures (CUSIP) number is CORRECT? A) It facilitates tracking and identification of a security. B) It ensures that the security is negotiable. C) It is evidence of ownership in a corporation. D) It is used in place of the registered owner's signature.

A) It facilitates tracking and identification of a security.

Which of the following statements about warrants is NOT true? A) Warrants may not be traded in the secondary market. B) Warrants have an exercise price above the current market price of the common stock when issued. C) Warrants have longer lifetimes than rights. D) Warrants may be attached to another of the issuer's securities.

A) Warrants may not be traded in the secondary market.

Which of the following is a function of a registrar? A) Canceling old shares B) Accounting for the number of shares outstanding C) Transferring shares into the name of a new owner D) Recording the names of stockholders on the corporation's books

B) Accounting for the number of shares outstanding

The residual right of common stockholders refers to their right to A) examine the corporation's annual reports and other reports, and take legal action if irregularities are found B) claim company assets in bankruptcy after wages, taxes, creditors and preferred shareholders have been paid C) receive all announced dividends in accordance with the number of shares held D) vote in elections for the board of directors and in other important business decisions, such as changes to the charter

B) claim company assets in bankruptcy after wages, taxes, creditors and preferred shareholders have been paid

ABC Corporation declares a 5-4 stock split. On the ex-date, the price of ABC common will be reduced by A) 0.25 B) 0.8 C) 0.2 D) 0.5

C) 0.2 1/5

Your customer owns 100 shares of DWQ trading at $50 per share. He hears that DWQ has declared a 25% stock dividend and wants to know how that will affect his holdings after the stock dividend is paid. You should advise the customer that based on the current price he will own A) 100 shares at $50 B) 100 shares at $40 C) 125 shares at $40 D) 125 shares at $50

C) 125 shares at $40 The number of shares increased by 25%, or 25 shares. Total market value remains the same. To calculate the new market price, divide $5,000 (total market value) by 125 to get the after-dividend price of $40 per share.

A corporation authorized to issue 1 million shares of common stock originally issued 600,000 shares and later repurchased 40,000 shares for its treasury. How many shares of common stock will remain outstanding? A) 600,000 B) 960,000 C) 560,000 D) 40,000

C) 560,000

The board of directors is responsible for setting all of the following EXCEPT A) declaration date B) record date C) ex-dividend date D) payable date

C) ex-dividend date

In a portfolio containing common stock, preferred stock, convertible preferred stock, and ADRs, changes in interest rates would most likely affect the market price of the A) common stock B) convertible preferred stock C) preferred stock D) ADRs

C) preferred stock

All of the following statements describe warrants EXCEPT A) most commonly offered in connection with debentures to sweeten the offering B) traded in the secondary market C) short-term instruments that become worthless after the expiration date D) issued by a corporation

C) short-term instruments that become worthless after the expiration date

A customer owns 200 shares of GHI common stock at $10 per share and 300 shares of GHI preferred Class A stock at par. If GHI declares a 2:1 split for its common shares, how will the customer's preferred Class A shares be adjusted? A) 300 shares at $200 per share B) 1,000 shares at $30 per share C) 600 shares at $50 per share D) No adjustment is made

D) No adjustment is made

An ADR represents a A) foreign security trading in both the U.S. and a foreign market B) U.S. security trading in both the U.S. and a foreign market C) U.S. security trading in a foreign market D) foreign security trading in the U.S. market

D) foreign security trading in the U.S. market

Callable preferred stock is advantageous to the issuer because it allows the company to A) take advantage of high interest rates B) issue fixed-rate securities at a yield lower than usual C) call in the stock at less than par value and capture the difference as income D) replace a high, fixed-rate issue with a lower issue after the call date

D) replace a high, fixed-rate issue with a lower issue after the call date

A subscription right or privilege is best defined as A) the right of shareholders to buy any future issue of the company's preferred stock prior to submitted public orders B) the right of shareholders to maintain their percentage ownership of a company by selling a proportional number of warrants C) the right of shareholders to purchase company shares at a specific price within the next 5 years D) the right of current shareholders to maintain their fractional ownership of a company by buying a proportional number of shares of any future issue of common stock

D) the right of current shareholders to maintain their fractional ownership of a company by buying a proportional number of shares of any future issue of common stock

All of the following are characteristics of a rights offering EXCEPT A) it is issued to current stockholders B) the rights are marketable C) the subscription price is below the CMV D) the subscription period is up to 2 years

D) the subscription period is up to 2 years

Common stockholders of a publicly traded corporation have which of the following rights and privileges? I. Residual claim to assets at dissolution II. Right to a vote for stock dividends to be paid III. Right to receive an audited financial report on an annual basis IV. Claim against dividends in default

I and III

Which of the following statements regarding real estate investment trusts are TRUE? I. Hybrid REITs invest in both commercial property and residential property. II. Some REITs hold no real property but hold mortgages on commercial property instead. III. All dividend disbursements made by REITs will be recognized as qualified dividends by the IRS. IV. Dividends are taxed at the investor's ordinary income tax rate.

II and IV

Which of the following are TRUE of treasury stock? I. Treasury stock is authorized but not yet issued. II. Treasury stock may pay a reduced dividend. III. Treasury stock is issued but has no voting or dividend rights. IV. Treasury stock is previously issued stock that has been repurchased by the issuing company.

III and IV


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