SiE Unit 2

All of the following are considered unique or nonstandard corporate actions except A) 3:1 stock split. B) tender offer. C) merger. D) takeover.

A Corporate actions where the adjustments to cost basis are standardized would include cash and stock dividends, even and uneven splits both forward and reverse and the issuance of rights and warrants. All other corporate actions are considered nonstandard. Examples would include mergers and acquisitions, takeovers, spin-offs, tender offers and buy-backs or repurchases of stock. LO 2.h

Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her? A) Duratech common stock, an exciting new tech manufacturer B) BuyMore, Inc., a big-box retailer with a long history of healthy dividend payments C) Long Beach Electric, a utility D) Generic Motors, Inc., 4 ¾% preferred stock

A New, rapidly growing companies tend to pay little or no dividends. The others all sound like decent sources of dividend payments LO 2.c

Preferred shareholders have A) no voting or preemptive rights. B) both voting and preemptive rights. C) voting rights only. D) preemptive rights only.

A Preferred shareholders have no voting rights, nor do they have preemptive rights, which is the right to maintain the same percentage ownership in the corporation should additional shares be issued. LO 2.d

SKRAM Corporation is appealing directly to the shareholders of IDNIC Corporation to acquire shares of IDNIC stock. This appeal is best described as A) a sell-off with IDNIC the target company. B) a hostile takeover with IDNIC the target company. C) an acquisition. D) a buy back with SKRAM the bidder company.

B A hostile takeover is accomplished when the buyer (SKRAM) goes directly to the target (IDNIC) company's shareholders bypassing the board of directors or management.

Your customer is aware that a corporate action has taken place where the adjustment to the number of shares owned and the stock price will not be standardized but instead is unique to fit the circumstances and terms of the corporate action. Of those listed, which is most likely to be such an action? A) Forward stock split B) Merger or acquisition C) Uneven reverse split D) Stock dividend payment

B Adjustments are standardized for corporate actions such as forward and reverse splits (even or uneven) and dividend payments (cash and stock). However, some corporate actions require adjustments that are unique to each situation, not standardized. These would include mergers, acquisitions, takeovers, spinoffs, or any of these where options contracts are traded on the issuer's securities. LO 2.i

Big Company, Inc., an NYSE-listed manufacturer of large objects, has declared a 50-cent-per-share dividend payable next month. Big Company also has options available for trade. The actual ex-dividend date will be declared by A) the CBOE. B) the NYSE. C) FINRA. D) the OTC.

B Ex-dividend dates are set by the market center where trades will likely take place. In the case of an NYSE-listed stock, the New York Stock Exchange will determine the ex-date. The fact that Big Company, Inc., has listed options is not relevant to the question. LO 2.b

Your customer owns 2,200 shares of LMN common stock. LMN Corporation issues stock rights related to an additional offer of shares that will increase the company's common shares by 20%. How many rights will your customer receive? A) The number cannot be determined. B) 2,200 rights C) 220 rights D) 440 rights

B Shareholders receive one right per share owned. LO 2.g

A company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash in what would commonly be known as A) a hostile takeover. B) a tender offer. C) an acquisition. D) a buy back.

B When a company offers to buy outstanding securities for cash or for cash plus other securities from its stockholders or bondholders this is known as a tender offer. In contrast, a buyback, sometimes referred to as a repurchase, is when a company buys its own outstanding securities in the open market rather than appealing directly to its investors.

During times when interest rates are rising, which of the following preferred are likely to pay a higher annual dividend? A) Participating B) Convertible C) Adjustable rate D) Callable

C Adjustable-rate preferred dividends are tied to benchmark interest rates such as Treasury securities. As these rates fluctuate up and down, so do the dividends on the adjustable shares. LO 2.d

A number of authorized shares is distributed to shareholders as part of a corporation's capital formation. What are these shares called? A) Outstanding shares B) Treasury shares C) Issued shares D) Authorized shares

C After a corporation is formed, a portion of the authorized shares (up to 100%) will be given to shareholders in return for investment in the company. These shares are issued to the company's owners and are thus called issued shares. LO 2.a

An American depositary receipt is a A) foreign security representing a domestic security in foreign markets. B) domestic security trading in foreign markets. C) domestic security representing a foreign security in U.S. markets. D) foreign security trading in U.S. markets.

C An ADR is a domestic security issued under U.S. law and registered with the SEC. It represents ownership in a non-U.S. security. It is used to ease ownership and trading of foreign securities in U.S. markets and for U.S. customers LO 2.e

Shareholders that tender their shares in a tender offer experience which of the following tax consequences? A) There is no effect. B) Investment income is received equal to the value increase of the new shares. C) A capital loss occurs if their cost basis is greater than the tender price. D) A capital gain occurs if their cost basis is greater than the tender offer.

C Shareholders who tender their shares effectively sell the shares at the tender price ($30) and realize a gain or a loss depending on what their cost was for the shares tendered. LO 2.i

American Depositary Receipts (ADRs) for a French corporation would be denominated in which of the following currencies? A) Euros B) Chinese yuan C) U.S. dollars D) A basket of currencies

C The "A" stands for American. The purpose of these instruments is to trade in the U.S. markets. They are issued in the United States and are denominated in U.S. dollars. LO 2.e

Which of the following sell transactions is not subject to the holding period restriction specified in SEC Rule 144? A) Unregistered stock acquired by a nonaffiliate under an investment letter B) Stock acquired by a corporate affiliate in a private placement C) Stock acquired in the OTC market by a corporate affiliate D) Unregistered stock acquired by a corporate affiliate in a stock option program

C The holding period rule applies only to unregistered stock, which may or may not be control stock. Unregistered stock results from either private placements or the exercise of a corporate stock option. Because this question asked which securities were not subject to the Rule 144 holding period, only stock acquired in the OTC market by a corporate affiliate is the correct answer. However, the affiliated person is subject to volume restrictions. LO 2.f

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

C When a corporation calls in preferred shares, the shares stop trading and dividend payments cease on the call date. LO 2.d

For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has A) 300 votes each for the open seats. B) 300 votes total to spread among the three open seats. C) no voting rights. D) 900 votes he can divide any way he wants among the three seats.

C Your customer owns preferred stock. Preferred stock carries no voting rights. LO 2.d

All else being equal, which of the following preferred would pay the highest dividend? A) Straight preferred B) Cumulative preferred C) Participating preferred D) Callable preferred

D Callable preferred is a benefit to the issuer—not the investor—so callable has to pay a higher dividend than the others because the other features are neutral or benefit the investor. LO 2.d