Special Securities

ABC Corporation has recently completed a $20,000,000 offering of 10% debentures due in 2035. Each bond was sold with a warrant attached that allows the holder to buy 10 shares of ABC common stock at $50 per share. The market price of ABC is currently $42. All of the following statements are true EXCEPT:

The company will raise an additional $5,000,000 if the warrants are exercised

Which statement is TRUE regarding rights?

The exercise price of a right is set at a discount to the stock's current market price

A customer owns 256 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 15 rights tendered, a shareholder may purchase one additional share at $24 per share. Any fractional rights holding may be rounded up to buy an additional share. If this shareholder wishes to subscribe, which statement is TRUE?

The shareholder can buy a maximum of 18 shares by paying $432

At issuance, the exercise price of a warrant is set at:

a premium to the current market price of that issuer's common stock

Which statement is TRUE about American Depositary Receipts?

holders are entitled to dividends if declared

At issuance, a warrant has:

Time value only

American Depositary Receipts would NOT trade on which of the following exchanges?

Tokyo Stock Exchange

All of the following statements are true regarding warrants EXCEPT:

Warrant holders have pre-emptive rights

Which statement is TRUE regarding warrants?

Warrants are typically issued with an exercise price that is higher than the stock's current market price and would be exercised when the stock's market price is above the warrant strike price

Which statement is TRUE about the intrinsic value of rights and warrants when issued?

Warrants have no intrinsic value but significant time value

All of the following terms describe rights EXCEPT:

redeemable

An ADR has been issued where each ADR equals 10 ordinary shares of the foreign issuer. If a client wished to buy enough ADRs to cover 1,000 ordinary shares, how many ADRs must be purchased?

100

A corporation is offering a new issue consisting of 100,000 units at $200 each. Each unit consists of 2 shares of preferred stock and a warrant to buy one additional common share. A full warrant allows the purchase of an additional common share at $5. If all the warrants are exercised, the corporation will have:

200,000 preferred shares and 100,000 common shares

Dividends are paid to holders of:

ADRs

Securities that are the means by which foreign issues are traded in the United States are termed:

ADRs

Which of the following actions taken by a corporation will raise additional capital?

Announcement of a rights distribution allowing existing shareholders to buy the additional stock

Which statement is TRUE about non-sponsored ADRs?

These ADRs are created without the participation of the foreign corporation

Which of the following do NOT have an equity position?

Convertible debenture bondholders

Which statement is TRUE regarding ADRs?

Dividends are declared by the issuer of the underlying stock in the foreign currency while investors receive dividend payments in U.S. dollars

Which statement is TRUE regarding American Depositary Receipts?

Exchange listed ADRs must be sponsored