Unit 1: QUIZ

In 2011, RST Corp. had both common stock and $100 par value 4% noncumulative preferred stock, outstanding. The preferred stock, like the common stock, pays dividends on a quarterly basis. Because of financial difficulties, the company stopped paying dividends after 2011. After resolving its problems in 2015, the company resumed dividend payments in 2016. Before paying the first quarterly common stock dividend that year, the company would have to pay a quarterly dividend to the preferred stockholders of A) $17.00. B) $4.00. C) $1.00. D) $20.00.

$1.00.

Common shareholders have the right to: A)limited access to a company's books and records. B)full access to a company's books and records. C)access a company's books and records with Securities and Exchange Commission (SEC) permission. D)no access to a company's books and records.

A (1.c)

Of the following stocks, which would be defined as penny stocks? I.Nasdaq-listed stock trading at $4 per share II.Bulletin Board stock trading at $4 per share III.Exchange-listed stock trading at $4 per share IV.OTC Pink stock trading at $4 per share A)II and IV B)I and IV C)II and III D)I and III

A (1.c)

Which of these is an equity security? A)Preferred stock B)Debentures C)Mortgage bonds D)Municipal bonds

A (1.c)

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

A (1.g)

The primary purpose of American depositary receipts (ADRs) is to facilitate the trading of: A)foreign stocks in U.S. markets. B)U.S. stocks in foreign markets. C)domestic stocks in both foreign and domestic markets. D)foreign stocks in both domestic and foreign markets.

A (1.h)

Which of these securities would likely provide the greatest potential for capital appreciation? A) A common stock B) A preferred stock C) A U.S. Treasury STRIP D) A convertible bond

A common stock

In the dividend disbursement process three of the four critical dates are determined by the board of directors (BOD) but one is determined by either Financial Industry Regulatory Authority (FINRA) for OTC stocks or the exchange for listed stocks. Which one is it? A)declaration B)ex-dividend C)record D)payable

B (1.d)

All of the following could be characterized as benefits to owning common stock except A)limited liability. B)low dissolution priority. C)capital gains via increases in share price. D)income potential via the receipt of dividends.

B (1.e)

By purchasing shares of stock in a company, investors can benefit from which of the following? I. An increase in the price of the shares II. An increase in price of the company's debt securities III. An increase in the yield of the company's outstanding debt securities IV. The receipt of profits to be distributed A)II and IV B)I and IV C)II and III D)I and III

B (1.e)

An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that: A)the shares are no longer restricted, having been held fully paid for six months. B)any shares sold will be subject to volume restrictions if still an affiliate. C)while no longer restricted, all sales of these shares must be approved by the issuer's board of directors (BOD). D)no limit on the number of shares that can be sold will be imposed.

B (1.g)

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

B (1.i)

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

B (1.i)

A common stockholder's voting rights apply to which of the following? I. Election of the board of directors (BOD) II. Declaration of dividends III. Authorization or issue of more common shares IV. Changing suppliers for raw material or parts used in production A)I and IV B)II and III C)I and III D)II and IV

C (1.c)

By electing a board of directors (BOD), stockholders have: A) a say in the day-to-day details of its operations but no say in the management selected to carry out those operations. B) a say in the company's management and all day-to-day details of its business operations. C) a say in the company's management but are not involved in the day-to-day details of its operations. D) neither a say in the company's management nor a say in any of the day-to-day details of its operations.

C (1.c)

Common shareholders have the right to receive an audited set of financial statements of the company's performance: A)biannually. B)each quarter. C)annually. D)monthly.

C (1.c)

Under penny stock rules, what is required for a broker-dealer to consider an investor an established customer? A)Signed risk disclosure statement B)Signed transaction agreement C)At least three separate penny stock purchases D)Open cash account for six months or more

C (1.c)

Common dividends may be: A)declared or increased only by the board of directors (BOD). B)declared, increased, reduced, or suspended by the shareholders. C)declared, increased, reduced, or suspended by the board of directors (BOD). D)declared or suspended by the board of directors (BOD), with increases and reductions decided by the shareholders.

C (1.d)

An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor: A)must wait six months before any sales can be made. B)must wait six months before selling shares subject to volume limits. C)can sell the shares unrestricted at any time. D)can only sell subject to volume limits.

C (1.g)

Securities acquired through some means other than a registered public offering are known as: A)convertible. B)affiliate's stock. C)restricted. D)control.

C (1.g)

What is the primary purpose of an issuer sponsoring an American depositary receipt (ADR)? A)These securities are created to provide tax relief for U.S. investors. B)These securities permit the issuer to avoid Securities and Exchange Commission (SEC) jurisdiction. C)These securities are created to attract a U.S. investor base. D)These securities are created to facilitate foreign investment in U.S. companies.

C (1.h)

Which of the following statements is correct concerning the pricing of American depositary receipts (ADRs)? A)ADR pricing is dollar-based using an end-of-day net asset value (NAV). B)ADRs are priced in foreign currency. C)ADR pricing is dollar-based and fluctuates throughout the day. D)ADR pricing is dollar-based using an end-of-day public offering price (POP).

C (1.h)

An investor would expect which type of preferred stock to pay the highest stated dividend rate? A)Convertible B)Cumulative C)Callable D)Straight

C (1.i)

Interest-rate sensitivity for preferred shareholders should be understood to mean that: A)when interest rates rise, so do the prices of preferred shares. B)preferred share prices are not impacted by (insensitive to) changes in interest rates. C)when interest rates rise, the prices for preferred shares can fall. D)when interest rates fall, so do the prices of preferred shares.

C (1.i)

Past-due dividends on cumulative preferred shares: A)are written off as nonpayable. B)can never be paid until common shareholders receive a dividend. C)must be reallocated to common shareholders. D)accumulate on the company's books until paid.

D (1.h)

Penny stock rules I. apply to both solicited and unsolicited transactions. II. specify that established customers of the firm need not sign a suitability statement. III. mandate that an account holding penny stocks only need not be provided with a monthly statement. IV: require that prospects be given a copy of a risk disclosure document before their initial penny stock transaction. A)I and III B)II and III C)II and IV D)I and IV

C. (1.c)

All of the following are considered control persons (owning control stock) except: A)an officer of the corporation owning less than 1% the outstanding shares. B)the corporation's CFO owning 1% of the outstanding shares. C)a director on the board of directors (BOD) owning 2% of the outstanding shares. D)an unaffiliated shareholder owning 8% of the outstanding shares.

D (1.g)

An officer of a public company buys 1,000 shares of the company's registered stock in the open market. Regarding the sale of these shares, the officer may sell: A)under Rule 144 only after a six-month holding period. B)immediately, with no volume restrictions. C)only after leaving (becoming unaffiliated with) the company. D)immediately, subject to Rule 144 volume limitations.

D (1.g)

Which of the following best describes the trade execution of American depositary receipts (ADRs)? A)Trades are executed overseas in a foreign currency. B)Trades are executed overseas in U.S dollars. C)Trades are executed domestically in a foreign currency. D)Trades are executed domestically in U.S. dollars.

D (1.h)

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)Callable D)Adjustable rate

D (1.i)

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) BuyMore, Inc., a big-box retailer with a long history of healthy dividend payments B) Long Beach Electric, a utility C) Generic Motors, Inc., 4 ¾% preferred stock D) Duratech common stock, an exciting new tech manufacturer

Duratech common stock, an exciting new tech manufacturer

Under Rule 144, which of these sales are subject to volume limitations on the number of shares sold? I.Control person selling registered stock held for 1 year II.Control person selling restricted stock held for 2 years III.Nonaffiliate selling registered stock held for 1 month IV.Nonaffiliate selling restricted stock held for more than 6 months A) I and IV B) II and III C) III and IV D) I and II

I and II

Common stocks would be the most suitable for investors seeking

capital appreciation (growth).

Bonds and preferred stocks are better suited for _______________ since each is primarily an income investment and has limited growth prospects.

conservative investors

Squidco, Inc., is issuing 100 million dollars in 4 ½% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 a share, anytime in the next 10 years. Squidco common is currently trading at $29.95 a share. This is an example of a

warrant

An American depositary receipt is a

domestic security representing a foreign security in U.S. markets.

All of these dates are declared by the board of directors of a corporation except the A) ex-dividend date. B) declaration date. C) record date. D) payable date.

ex-dividend date.

Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to A) not file Form 144 due to the spousal exception. B) file Form 144 because he is a control person. C) not file Form 144 because only owns 3% and is not a control person. D) file Form 144 because he is a doctor.

file Form 144 because he is a control person. -- Because married couples aggregate their position, and collectively the Mary and John own 11% of the company, John is a control person and will need to file Form 144 to sell his shares of Doyle.

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

no voting rights.

American Liquidators Corporation (the ticker is LQDT) has 100 million outstanding common shares. The company would like to raise capital by selling 100 million new shares. In order to do this they must give their existing shareholders an opportunity to buy shares sufficient to maintain the shareholders percentage of ownership. In order to accomplish this they would

offer stock rights to existing shareholders.