SIE Unit 1

An officer of a public company buys 1000 shares of the company's registered stock in the open marker. Regarding the sale of these shares, the officer may sell a) immediately, subject to Rule 144 limitations b) under Rule 144 only after a six month waiting period c) only after leaving (becoming unaffiliated with ) the company d) immediately with no volume restrictions

a) immediately, subject to Rule 144 limitations

The holders of which of the following securities are considered owners of the issuing corporation? 1. mortgage bonds 2. debentures 3. preferred stock 4. cumulative stock a) 2 and 4 b) 1 and 2 c) 3 and 4 d) 1 and 3

c) 3 and 4 debtholders are creditors of the corporation, not owners

When shareholders owning participating preferred shares receive the additional participating amount, this was determined by a) securities and exchange commission (SEC) mandate b) the vote of all other preferred class shareholders c) common shareholders d) BOD

d) BOD

A common shareholder's voting rights apply to which of the following? 1. Election of the BOD 2. Declaration or dividends 3. Authorization or issue of more common shares 4. changing suppliers for raw materials or parts used in production a) 1 and 3 b) 1 and 4 c) 2 and 4 d) 2 and 3

a) 1 and 3 They may election the BOD indirectly influencing the policy on payment of dividends and may vote on issues concerning the company's capitalization, such as the issuance of more common stock

Tranaactions where the penny stock rules are applicable would be those that a) are solicited b) are either solicited or unsolicited c) are unsolicited d) are neither solicited or unsolicited

a) are solicited

Common shareholders wanting to vote on issues at a shareholder meeting can do so in all of the following ways EXCEPT a) by telephone or text message b) by proxy delivered online c) by proxy delivered by mail d) in person

a) by telephone or text message

Which of the following statements is correct concerning currency risk when investing in an American Depositary receipt (ADR)? a) currency risk is still a factor when purchasing an ADR b) US investors are protected from currency risk by underlying foreign corporation c) US investors are protected from currency risk by the depositary bank d) currency risk is eliminated because the securities are dollar denominated

a) currency risk is still a factor when purchasing an ADR ADRs are issued and pay dividends in US dollars eliminating the complications of currency conversion. However, ADRs are still subject to currency risk because the company pays dividends in its home currency, and the issuing bank pays out those dividends in US dollars. When the exchange rate changes, the amount these dividends (in US dollars) will fluctuate as well.

Common dividndds may be a) declared, increased, reduced, or suspended by the BOD b) declared or increased only by the BOD c) declared, increased, reduced, or suspended by the shareholders d) declared or suspended by the BOD, with increases and reductions decided by the shareholders

a) declared, increased, reduced, or suspended by the BOD

A share of stock in the hands of a stockholder represents a) entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the BOD b) no entitlement to receive profits through dividends when distributed but the right to vote for who will serve on the BOD c) entitlement to receive profits through dividends when distributed but not the right to vote for who will serve on the BOD d) neither the entitlement to receive profits through dividends when distributed nor the right to vote for who will serve on the BOD

a) entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the BOD

Common shareholders have the right to: a) limited access to a company's books and records b) no access to a company's books and records c) full access to a company's books and records d) access a company's books and records with SEC permission

a) limited access to a company's books and records For example, they have the right to examine the minutes of meetings of the BOD

Penny Stock Rules 1. apply to both solicited and unsolicited transactions 2. specify that established customers of the firm need not sign a suitability statement 3. mandate that an account holding penny stocks only need not be provided with a month statement 4. require that prospaects be given a copy of a risk disclure documents before their initial penny stock transaction a) 2 and 3 b) 2 and 4 d) 1 and 4 d) 1 and 3

b) 2 and 4

An investor would expect which type of preferred stock to pay the highest stated dividend rate? a) cumulative b) callable c) straight d) convertible

b) callable with callable stock, to compensate for the possibility that the shares may be called, the issuer pays a higher dividend that with straight preferred.

Characteristics common to penny stocks would include which of the following? a) market price greater than or equal to $5 per share and unlisted b) market price less than $5 per share and unlisted c) market price less than $5 per share and listed on an exchange or Nasdaq d) market price greater than or equal to $5 per share and listed on an exchange or Nasdaq

b) market price less than $5 per share and unlisted

A shareholder feels strongly about some of the issues to be voted on at the next shareholder meeting but is unable to attend. Which of the following is TRUE? a) the shareholder must deliver the vote in person but can do so before the date of the meeting b) the shareholder can vote by proxy c) the shareholder must relinquish the right to vote at this meeting d) the shareholder will need to attend in person in order to vote

b) the shareholder can vote by proxy

Exempt from the penny stock rules are a) both solicited and unsolicited transactions b) unsolicited transactions c) all transactions d) solicited transactions

b) unsolicited transactions Unsolicited transactions (those not recommended by the B/D or registered representative) are exempt from the penny stock rules

An investor and his mother own 20% and 10%, respectively, of a corporation's outstanding shares, and the mother wants to sell all of her holdings. According to Rule 144, which of the following statements are TRUE? 1. She must file Form 144 to sell the shares 2. She does not have to file Form 144 to sell the shares. 3. She is considered an affiliated person. 4. She is not considered an affiliated person. a) 1 and 4 b) 2 and 4 c) 1 and 3 d) 2 and 3

c) 1 and 3

For restricted stock (unregistered) held by an affiliate (insider), which of the following applies? a) 6 month holding period, with sales allowed freely thereafter b) no holding period, but volume limits always apply c) 6 month holding period, with volume limits thereafter d) no holding period or any volume restrictions

c) 6 month holding period, with volume limits thereafter

Before effecting an initial penny stock transaction for a new customer, the registered representative must do all of the following EXCEPT: a)confirm whether the person is an established customer b) obtain a signed suitability statement form the customer c) confirm that a margin account has been established d) obtain a signed risk disclosure document from the customer

c) confirm that a margin account has been established Registered representatives must provide information to all penny stock buyers which customers must sign. They must determine suitability based on financial information, investor experience, and objectives supplied by the buyer. Investors who are not considered established customers (new customers, as in this case) must sign a suitability statement as well.

Each of the following are likely benefits of owning shares of common stock EXCEPT a) voting rights b) limited liability c) interest payments d) dividend payments

c) interest payments interest payments are paid to bond holders but not on common stock.

Each of the following is considered a control person under Securities and Exchange Commission (SEC) Rule 144 EXCEPT a) another company that owns 10% or more of the company's equity securities b) corporate officers and directors c) those persons who owns 5% or more of the total beneficial interest of a company's common stock d)those persons who owns 10% or more of the total beneficial interest of a company's common stock

c) those persons who owns 5% or more of the total beneficial interest of a company's common stock

An investor and his mother own 20% and 10%, respectively, of a corporation's outstanding shares, and the mother wants to sell all of her holdings. According to Rule 144, which of the following statements are TRUE? 1. She must file Form 144 to sell the shares 2. She does not have to file Form 144 to sell the shares. 3. She is considered an affiliated person. 4. She is not considered an affiliated person. a) 2 and 4 b) 2 and 3 c) 1 and 4 d) 1 and 3

d) 1 and 3

Past-due dividends on cumulative preferred shares a) must be reallocated to common shareholders b) can never be paid until common shareholders receive a dividend c) are written off as nonpayable d) accumulate on the company's books until paid

d) accumulate on the company's books until paid Past-due dividends on cumulative preferred stock accumulates on the company's books until the corporation's BOD decides to pay them. When the company resumes div payments, cumulative preferred stockholders receive current dividends plus the total accumulated dividends in arrears before any dividends may be distributed to common stockholders.

Mr. Smith purchases 2% of MES Corporation's common stock. Four years later Mrs. Smith purchases 9% for her own account. Which of the following is TRUE? a) Neither Mr or Mrs Smith is considered a control person b) because she owns more shares, only Mrs Smith is considered a control person c) only Mrs Smith, as the initial shareholder, would be considered a control person d) both Mr and Mrs Smith are considered control persons

d) both Mr and Mrs Smith are considered control persons

Which of the following features of preferred stock allows the holder to reduce the risk of inflation? a) noncumulative b) cumulative c) callable d) convertible

d) convertible fixed-dollar investments, such as bonds and preferred stock, are subject to inflation risk, which is the risk that fixed interest or dividend payments will be worth less over time of purchasing power. The ability to convert the common stock, which tends to keep pace with inflation, offsets this risk

MJS Corporation has called in its 6% preferred shares. Owners of these shares should expect that a) dividend payments will continue until the owner chooses to turn in the shares b) the shares will be resold to new investors c) the shares will continue to trade in the open market d) dividend payments will cease on the call date

d) dividend payments will cease on the call date When a corporation calls in preferred shares, the shares stop trading and dividend payments cease on the call date.

An affiliate holding unregistered shares can sell under Rule 144 a) one time a year b) two times a year c) as often as wished d) four times a year

d) four times a year Rule 144 allows an affiliate to sell the greater of 1% of the outstanding shares or the average of the last four weeks' trading volumes with each Form 144 filing. The filing is good for 90 days (three months) which would allow for as many as four filings per year.

All of the following could be characterized as benefits to owning common stock EXCEPT: a) capital gains via increases in share price b) limited liability c) income potential via the receipt of dividends d) low dissolution priority

d) low dissolution priority

When a company wants to issue additional shares of stock, the preemptive right given to existing shareholders allows those shareholders to a)increase their proportionate ownership in the corporation b) pass on their proportionate ownership in the corporation to an heir c) decrease their proportionate ownership in the corporation d) maintain their proportionate ownership in the corporation

d) maintain their proportionate ownership in the corporation In the event a corporation wants to issue additional shares of stock, the preemptive right given to existing shareholders allows the shareholders to maintain their proportionate ownership in the corporation by purchasing shares before the shares are available to new investors

A corporation that has issued cumulative preferred stock a) pays only current dividends with no liability for missed or past-due dividends b) pays the preferred dividends before paying the interest payments due on its outstanding bonds c) pays only the current dividends on the preferred, before paying a dividend on the common and then pays any past-due dividends d) pays past and current preferred dividends before paying dividends on common stock

d) pays past and current preferred dividends before paying dividends on common stock

A customer investing in common equity securities could realize all of the following EXCEPT a) current income via dividend declarations b) potential capital appreciation c) potential hedge against inflation d) protection of principal investment

d) protection of principal investment Common shareholders have limited liability, meaning that they cannot lose more than was initially invested, they could still lose all of it.