EQUITIES

Of the following choices, the only method that will raise new funds for a corporation is to: A. sell additional common shares through a rights offering B. force conversion of outstanding convertible preferred C. split its common shares 2 for 1 D. call its outstanding preferred

A. sell additional common shares through a rights offering

A corporation has issued $100 par, 6 1/2% cumulative convertible preferred stock, callable at par. The preferred is convertible into 2 shares of common stock. Currently, the preferred stock is trading at $100 while the common stock is trading at $50. If a customer buys 100 preferred shares, converts, and then sells the common stock in the market, the profit or loss is (ignoring commissions): A. $0 B. $1,000 loss C. $5,000 gain D. $10,400 gain

A. $0 customer buys 100 shares of the preferred stock, he or she will pay 100 x $100 per share = $10,000. Since each share of preferred is convertible into 2 common shares, the 100 preferred shares will be converted into 2 x 100 = 200 common shares. The sale of 200 common shares at the current market price of $50 will yield $10,000. The net profit is: $10,000 - $10,000 = $0. Here, there is a wash, as both the common and preferred are trading at parity.

A corporation has issued $100 par, 4% cumulative convertible preferred stock, callable at par. The preferred is convertible into 4 shares of common stock. Currently, the preferred stock is trading at $103 while the common stock is trading at $26. If a customer buys 100 preferred shares, converts, and then sells the common stock in the market, the profit or loss is (ignoring commissions): A. $100 gain B. $100 loss C. $7,400 gain D. $7,400 loss

A. $100 gain 100 shares of the preferred stock, he or she will pay 100 x $103 per share = $10,300. Since each share of preferred is convertible into 4 common shares, the 100 preferred shares will be converted into 4 x 100 = 400 common shares. The sale of 400 common shares at the current market price of $26 will yield $10,400. The net gain is: $10,400 - $10,300 = $100

A customer buys 100 shares of preferred at $51 per share. The par value is $50. The dividend rate is 8%. Each dividend payment would be: A. $200 B. $400 C. $600 D. $800

A. $200 8% X $50 par value = $4 per share X 100 shares = $400 paid semi-annually, each payment is for $200

A corporation is offering a new issue consisting of 100,000 units at $200 each. Each unit consists of 1 share of preferred stock and a 1/4 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: A. 100,000 preferred shares and 25,000 common shares B. 100,000 preferred shares and 50,000 common shares C. 200,000 preferred shares and 100,000 common shares D. 20,000 preferred shares and 200,000 common shares

A. 100,000 preferred shares and 25,000 common shares

A corporation has issued 50,000,000 shares of common stock at $.50 par. The corporation has 10,000,000 shares of Treasury Stock on its books. The aggregate par value of the outstanding shares is: A. $20,000,000 B. $40,000,000 C. $80,000,000 D. $100,000,000

A. 20,000,000 Issued stock (50,000,000 shares) - Treasury stock (10,000,000 shares) = 40,000,000 shares outstanding at $.50 par = $20,000,000

XYZ Corporation has declared a rights offering to stockholders of record on Wednesday, November 15th. Under the offer, shareholders need 5 rights to subscribe to 1 new share at a price of $24. Fractional shares can be rounded up to purchase 1 full share. A customer owning 200 shares wishes to subscribe. The market price of the stock is currently $34. The customer can buy: A. 40 shares for $960 B. 40 shares for $1,360 C. 200 shares for $4,800 D. 200 shares for $6,800

A. 40 shares for $960 Since 5 rights are needed to buy 1 new share, the customer receiving 200 rights can buy 200 / 5 = 40 shares at $24 each = $960 total for 40 shares.

ABC 10% $100 par preferred is trading at $115 in the Market. The current yield is: A. 8.7% B. 9.5% C. 10% D. 11.5%

A. 8.7% ANNUAL INCOME / MARKET PRICE = CURRENT YIELD $10 / $115 = 8.7%

Which of the following pay dividends? I. Preferred Stock II. ADRs III. Warrants IV. Rights A. I and II only B. II and III only C. I, II, III D. I, II, IV

A. I and II only

Which of the following statements are TRUE about sponsored ADRs? I. Sponsored ADRs are sponsored by the issuing foreign corporation II. Sponsored ADRs are sponsored by the country in which the foreign corporation resides III. Sponsored ADRs provide financial statements to the ADR holder in English IV. Sponsored ADRs provide financial statements only in the native language of the issuing corporation A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which of the following statements are TRUE regarding warrants? I. The exercise price of a warrant is set at a premium to the stock's current market price II. The exercise price of a warrant is set at a discount to the stock's current market price III. Warrants are exercised when the exercise price is below the market price IV. Warrants are exercised when the exercise price is above the market price A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which statements are TRUE about the time value and intrinsic value of rights and warrants when issued? I. Warrants have time value at issuance II. Warrants have intrinsic value at issuance III. Rights have time value at issuance IV. Rights have intrinsic value at issuance A. I and III B. I and IV C. II and III D. II and IV

A. I and III

A corporation issues $100 par convertible preferred stock, convertible at $10 per share, when the market price of the common is currently $5. Which statement is TRUE? A. The conversion ratio is 10:1 B. The conversion ratio is 5:1 C. The conversion ratio is 2:1 D. The conversion ratio cannot be determined

A. The conversion ratio is 10:1 Conversion ratio = Par Value / Conversion Price $100 Par / $10 Conversion Price = 10:1 Conversion Ratio

Which function would be performed by the registrar? A. Verifying the record of all shareholder names and addresses B. acting as disbursement agent for the corporation C. issuing new stock certificates D. canceling old stock certificates

A. Verifying the record of all shareholder names and addresses

The transfer agent is typically responsible for all of the following functions EXCEPT: A. maintaining the integrity of the record of all shareholder names and addresses B. acting as disbursement agent for the corporation C. issuing new stock certificates D. canceling old stock certificates

A. maintaining the integrity of the record of all shareholder names and addresses

If a company repurchases its own common shares, the number of: A. outstanding shares will decrease B. outstanding shares will increase C. issued shares will decrease D. unissued shares will increase

A. outstanding shares will decrease

All of the following are terms associated with preferred stock EXCEPT: A. renewable B. cumulative C. negotiable D. convertible

A. renewable

A customer buys 100 shares of preferred at $80 per share. The par value is $100. The dividend rate is 10%. The customer will receive how much in each dividend payment? A. $400 B. $500 C. $800 D. $1,000

B. $500 Preferred dividends are based on a stated percentage of par value stated rate is 10% of $100 par = $10 annual dividend per preferred share 100 shares = annual dividend is $1,000 Remember, though, that preferred dividends are paid twice a year, so each payment will be for $500.

ABC Corporation has declared a rights offering to stockholders of record on Friday, December 10th. Under the offer, shareholders need 10 rights to subscribe to 1 new share at a price of $19. Fractional shares can be rounded up to purchase 1 full share. As of the ex date, the stock is trading at $24. The value of the right is: A. $.45 B. $.50 C. $.55 D. $1.00

B. $.50 $24 - $19 / 10 = $5 $5 / 10 = $.50 Value "Ex Rights"

A corporation has issued 20,000,000 shares of common stock at $2 par. The corporation has 5,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is: A. $10,000,000 B. $30,000,000 C. $40,000,000 D. $50,000,000

B. $30,000,000 Issued stock (20,000,000 shares) - Treasury stock (5,000,000 shares) = 15,000,000 shares outstanding at $2 par = $30,000,000 value

A corporation has issued $100 par, 6 1/2% cumulative convertible preferred stock, callable at par. The preferred is convertible into 2 shares of common stock. Currently, the preferred stock is trading at $98 while the common stock is trading at $52. If a customer buys 100 preferred shares, converts, and then sells the common stock in the market, the profit or loss is (ignoring commissions): A. $200 gain B. $600 gain C. $4,600 gain D. $5,200 gain

B. $600 gain 100 shares of the preferred stock, he or she will pay 100 x $98 per share = $9,800. Since each share of preferred is convertible into 2 common shares, the 100 preferred shares will be converted into 2 x 100 = 200 common shares. The sale of 200 common shares at the current market price of $52 will yield $10,400. The net profit is: $10,400 - $9,800 = $600.

A customer holds 100 shares of ABC Corp $100 par convertible preferred stock convertible at a 10 to 1 ratio. If ABC declares and pays a 10% stock dividend, then as of the payable date, the customer will now have: A. 90 shares of ABC preferred stock B. 100 shares of ABC preferred stock C. 100 shares of ABC preferred stock and 10 shares of ABC common stock D. 110 shares of ABC preferred stock

B. 100 shares of ABC preferred stock

PDQ Company $10 par common stock is currently trading at $40. PDQ is currently paying a common dividend of $.20 per share quarterly. The current yield of PDQ stock is: A. 0.5% B. 2.0% C. 5.0% D. 8.0%

B. 2.0% ANNUAL INCOME / MARKET PRICE = CURRENT YIELD $.80 / $40 = 2.00%

A customer owns 400 shares of ABC stock. ABC is having a rights offering where 20 rights are needed to subscribe to 1 new share. How many new shares can the customer purchase through this rights offering? A. 1 share B. 20 shares C. 100 shares D. 400 shares

B. 20 shares

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: A. 100,000 preferred shares and 100,000 common shares B. 200,000 preferred shares and 100,000 common shares C. 200,000 preferred shares and 50,000 common shares D. 50,000 preferred shares and 100,000 common shares

B. 200,000 preferred shares and 100,000 common shares Since each unit consists of 2 preferred shares, 100,000 units X 2 = 200,000 preferred shares. Since a warrant which enables one to buy one additional share is also attached to each unit, 100,000 units X 1 = 100,000 additional common shares issued if the warrants are exercised.

A company has 1,000,000 shares outstanding. It plans to issue 2,000,000 additional common shares to raise funds to build a new manufacturing facility. Your client owns 50,000 shares of this company. How many rights will the customer receive? A. 25,000 B. 50,000 C. 75,000 D. 100,000

B. 50,000 The customer receives 1 right per shares, so he or she receives 50,000 rights. Because there are 1,000,000 shares outstanding, the company will issue a total of 1,000,000 rights covering the sale of 2,000,000 additional shares. Therefore, the terms of the offering will be 1,000,000 rights/2,000,000 shares = .5 right per additional shares. Because this customer gets 50,000 rights, the customer will be able to subscribe to 50,000 rights/.5 right per share = 100,000 additional shares. Another way of looking at this is that the customer owns 5% of the company (50,000 shares owned /1,000,000 shares outstanding). Because the company is issuing 2,000,000 additional shares, the customer can subscribe to 5% of these, or 100,000 shares.

Preferred stocks are most often suitable investments for the: A. individual B. corporate investor C. partnership investor D. fiduciary investor

B. Corporate investor

Which of the following statements are TRUE regarding the effect of a repurchase of Treasury Stock? I. Outstanding shares are reduced II. Outstanding shares are increased III. Earnings Per Share are reduced IV. Earnings Per Share are increased A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

Which statements are TRUE regarding the taxation of dividends received by investors? I. Individuals cannot exclude any dividends received from taxation II. Individuals can exclude 50% of dividends received from taxation III. Corporations cannot exclude any dividends received from taxation IV. Corporations can exclude 50% of dividends received from taxation A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

During periods of stable interest rates, which type of preferred stock will have the greatest price volatility? A. Cumulative B. Participating C. Callable D. Adjustable Rate

B. Participating

A corporation issues $100 par convertible preferred stock, convertible at $20 per share, when the market price of the common is currently $10. Which statement is TRUE? A. The conversion ratio is 10:1 B. The conversion ratio is 5:1 C. The conversion ratio is 2.5:1 D. The conversion ratio is 2:1

B. The conversion ratio is 5:1 Par Value / Conversion Price =CONVERSION RATIO $100 Par / $20 Conversion Price = 5:1 Conversion Ratio

A corporation issues $50 par convertible preferred stock, convertible at $10 per share, when the market price of the common is currently $5. Which statement is TRUE? A. The conversion ratio is 10:1 B. The conversion ratio is 5:1 C. The conversion ratio is 2:1 D. The conversion ratio cannot be determined

B. The conversion ratio is 5:1 Par Value / Conversion Price =CONVERSION RATIO $50 Par / $10 Conversion Price = 5:1 Conversion Ratio.

A customer owns 210 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 20 rights tendered, a shareholder may purchase one additional share at $20 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? A. The shareholder can buy a maximum of 10 shares by paying $20 B. The shareholder can buy a maximum of 11 shares by paying $220 C. The shareholder can buy a maximum of 11 shares by paying $420 D. The shareholder can buy a maximum of 110 shares by paying $2,200

B. The shareholder can buy a maximum of 11 shares by paying $220

A customer owns 107 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 10 rights tendered, a shareholder may purchase one additional share at $22 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? A. The shareholder can buy a maximum of 10 shares by paying $220 B. The shareholder can buy a maximum of 11 shares by paying $242 C. The shareholder can buy a maximum of 107 shares by paying $2,354 D. The shareholder can buy a maximum of 110 shares by paying $2,420

B. The shareholder can buy a maximum of 11 shares by paying $242

ABC Corporation has declared a cash dividend to stockholders of record on Friday, December 10th. The last day to buy ABC shares BEFORE they go ex dividend is? A. Tuesday, December 7th B. Wednesday, December 8th C. Thursday, December 9th D. Friday, December 10th

B. Wednesday, December 8th

Callable preferred stock is likely to be redeemed by the issuer if: A. interest rates rise B. interest rates fall C. the common stock price rises D. the common stock price falls

B. interest rates fall

The definition of Treasury stock is: A. authorized shares minus issued shares B. issued shares minus outstanding shares C. authorized shares minus outstanding shares D. capital in excess of par value minus par value

B. issued shares minus outstanding shares

The definition of Treasury Stock is: A. issued shares which are outstanding B. issued shares which are no longer outstanding C. unissued shares which are outstanding D. unissued shares which are no longer outstanding

B. issued shares which are no longer outstanding

In a rights offering, shareholders who subscribe make payment to the: A. stand-by underwriter B. rights agent for the issuer C. Brokerage firm D. trustee

B. rights agent for the issuer

Which of the following sources could be consulted to find the symbol of an NYSE listed security? I. Federal Register II. NYSE web site III.Standard and Poor's Stock Guide A. I only B. I and II C. II and III D. I, II, III

C. II and III

A company declares a cash dividend that is 10% higher than the previous dividend rate. Prior to the announcement, the annual dividend yield was 8% and the stock was trading at $25 per share. What is the new dividend payment amount per share? A. $.45 B. $.50 C. $.55 D. $.60

C. $.55 This question is more annoying than hard! current annual dividend yield = 8% x $25 current share price = $2.00 per year dividend now increasing by 10% new annual dividend rate = 1.10 x $2.00 = $2.20 common dividends are paid quarterly: quarterly dividend will be $2.20 / 4 = $.55.

A company's common stock is selling in the market at a "multiple of 15". If the market price of the common stock is currently $10, what is the earnings per share? A. $.15 B. $.16 C. $.67 D. $1.50

C. $.67 When a stock is selling at a "multiple" of 15, this means that the market price is 15 times the current earnings per share. Since the market price is at $10 and the P/E ratio is 15, earnings per share is $.67.

A corporation has issued $100 par, 8% cumulative convertible preferred stock, callable at par. The preferred is convertible into 1.4 shares of common stock. Currently, the preferred stock is trading at $102 while the common stock is trading at $75.50. The corporation calls the preferred stock at par plus accrued dividends of $2 per share. If a customer buys 100 preferred shares, converts, and then sells the common stock in the market, the profit is (ignoring commissions): A. $200 B. $320 C. $370 D. $570

C. $370 If the customer buys 100 shares of the preferred stock, he or she will pay 100 x $102 per share = $10,200. Since each share of preferred is convertible into 1.4 common shares, the 100 preferred shares will be converted into 1.4 x 100 = 140 common shares. The sale of 140 common shares at the current market price of $75.50 will yield $10,570. The net profit is: $10,570 - $10,200 = $370

A corporation has issued 100,000,000 shares of common stock at $1 par. The corporation has 25,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is: A. $12,500,000 B. $25,000,000 C. $75,000,000 D. $100,000,000

C. $75,000,000 Issued stock (100,000,000 shares) minus Treasury stock (25,000,000 shares) = 75,000,000 shares outstanding at $1 par = $75,000,000

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? A. 1 B. 10 C. 100 D. 1,000

C. 100

All of the following statements are true about American Depositary Receipts EXCEPT: A. ADRs facilitate domestic trading of foreign securities B. ADR holders receive dividends C. ADR holders have voting and pre-emptive rights D. ADRs are issued by domestic banks

C. ADR holders have voting and pre-emptive rights

Dividends are paid to holders of: A. Warrants B. Treasury Stock C. ADRs D. Rights

C. ADRs

Which of the following features are common to both preferred stock and bonds? I. Fixed rate II. Can be callable III. Fixed maturity date IV. Semi-annual payments A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

C. I, II, IV

The Board of Directors of a company will set which of the following? I. Declaration date II. Record date III. Ex date IV. Payable date A. I and II B. III and IV C. I, II, IV D. I, II, III, IV

C. I, II, IV`

Which of the following statements are TRUE when comparing convertible preferred stock and non-convertible preferred stock? I. Convertible preferred issues will have a higher yield than similar non-convertible yields of the same issuer II. Non-convertible preferred issues will have a higher yield than similar convertible yields of the same issuer III. Convertible preferred stockholders can benefit as the common stock price rises IV. Non-convertible preferred stockholders can benefit as the common stock price rises A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which statements are TRUE regarding ADRs? I. ADRs are vehicles for trading United States securities in foreign countries II. ADRs are vehicles for trading foreign securities in the United States III. ADR market prices are influenced by foreign currency exchange fluctuations IV. ADR market prices are not influenced by foreign currency exchange fluctuations A. I and III B. I and IV C. II and III D. II and IV

C. II and III

Which statements are TRUE regarding participating preferred stock? Participating preferred: I. participates in any bond interest payments II. participates in "extra" common dividends declared by the Board of Directors III. has a dividend rate that is fixed as to a minimum but not as to a maximum IV. has a dividend rate that is fixed as to a maximum but not as to a minimum A. I and III B. I and IV C. II and III D. II and IV

C. II and III

A corporation issues $100 par convertible preferred stock, convertible at $8 per share when the market price of the common is $4. The preferred is issued under an "anti-dilutive covenant." If the company declares a 2:1 stock split, which statements are TRUE? I. The conversion price is adjusted to $2 II. The conversion price is adjusted to $4 III. The conversion ratio is adjusted to 25:1 IV. The conversion ratio is adjusted to 50:1 A. I and III B. I and IV C. II and III D. II and IV

C. II and III Prior to the stock dividend, the conversion price was $8 per share. If there is a 2 for 1 stock split, the new conversion price will be adjusted to $8/2 = $4 per share. Since each preferred share is $100 par, the new conversion ratio will be $100/4 = 25:1.

Which of the following statements are TRUE about American Depositary Receipts? I. ADR holders have voting and pre-emptive rights II. ADRs facilitate domestic trading of foreign securities in the United States III. ADRs are issued by domestic banks IV. ADR holders receive dividends A. I and II only B. III and IV only C. II, III, IV D. I, II, III, IV

C. II, III, IV

Which of the following are TRUE statements regarding the activities of the registrar? I. The registrar cancels old shares II. The registrar transfers shares to new owners III. The registrar accounts for the number of shares issued IV. The registrar keeps the integrity of the shareholder record A. I and II B. II and IV C. III and IV D. I, II, III, IV

C. III and IV

Which of the following do NOT have an equity position? I. Convertible preferred shareholders II. Preferred shareholders III. Convertible debenture bondholders IV. Subordinated debenture bondholders A. I, II B. I, III, IV C. III, IV D. I, II, III, IV

C. III, IV

A corporation wishes to raise funds to build a new manufacturing facility. Which method is suitable for the issuer to obtain financing? A. Force conversion of outstanding convertible preferred B. Split the outstanding shares of common stock 2 for 1 C. Issue rights to outstanding shares of common stock D. Call outstanding convertible preferred

C. Issue rights to outstanding shares of common stock

Common stockholders and preferred stockholders BOTH have: A. voting rights B. pre-emptive rights C. dividend rights D. subscription rights

C. dividend rights

The Board of Directors of a company will set all of the following EXCEPT: A. declaration date B. record date C. ex date D. payable date

C. ex date (FINRA DECLARES EX DATE)

Which of the following statements about warrants are TRUE? I. At issuance, warrants are "out of the money" II. Warrant valuation is influenced by the life of the instrument III. Warrant valuation is directly influenced by the valuation of the company's common stock IV. Warrant valuation reflects market expectations for future earnings of the company A. I and IV only B. II and III only C. I, II, IV D. I, II, III, IV

D. I, II, III, IV

ABC Company has issued 8%, $100 par, cumulative preferred stock. Two years ago, ABC paid a 4% preferred dividend. Last year, ABC paid a 5% preferred stock dividend. This year, ABC wishes to pay a common dividend. If the preferred stock is now trading at $94, a customer who owns 100 shares of the company's preferred stock will receive: A. $700 B. $800 C. $1,000 D. $1,500

D. $1,500 15%

A customer owns 200 shares of ABC stock. ABC is having a rights offering where 20 rights are needed to subscribe to 1 new share. The customer will receive: A. 1 right B. 10 rights C. 100 rights D. 200 rights

D. 200 rights

ABC Company has outstanding 6% cumulative preferred stock. Two years ago, ABC paid a 6% preferred dividend. Last year, ABC paid a 4% preferred stock dividend. This year, ABC wishes to pay a common dividend. The preferred shareholders must receive: A. 0% B. 2% C. 6% D. 8%

D. 8%

All of the following statements are true regarding the trading of ADRs EXCEPT: A. ADRs are traded on the New York Stock Exchange B. ADRs are traded on the NASDAQ Stock Market C. ADRs are traded on the American Stock Exchange D. ADRs are traded on the Chicago Board Options Exchange

D. ADRs are traded on the Chicago Board Options Exchange

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. Which statement(s) are TRUE? I. The warrants help to increase the issue's marketability II. The warrants help to lower the interest cost on the issue III. The warrants are "under water" IV. The company will raise an additional $10,000,000 if the warrants are exercised A. I only B. I and II C. III and IV D. I, II, III, IV

D. I, II, III, IV

A corporation issues $100 par convertible preferred stock, convertible at $10 per share, when the market price of the common is currently $5. The preferred is issued under an "anti-dilutive covenant." If the company declares a 25% stock dividend, which statements are TRUE? I. The conversion price remains at $10 II. The conversion price is adjusted to $8 III. The conversion ratio remains at 10:1 IV. The conversion ratio is adjusted to 12.5:1 A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

If a corporation calls its convertible preferred stock that is trading at a premium in the market due to a rise in the price of the common stock, at par, which of the following statements are TRUE? I. The corporation is advance refunding the issue II. The corporation is forcing the shareholders to convert into common shares III. If the shareholders continue to hold the preferred stock, dividend payments will be made as scheduled IV. If the shareholders continue to hold the preferred stock, they will not receive any dividend payments A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which of the following statements are TRUE regarding rights? I. Rights give the holder the long term option to buy stock II. Rights give the holder a very short term option to buy stock III. The exercise price of a right is set at a premium to the stock's current market price IV. the exercise price of a right is set at a discount to the stock's current market price A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which statement is BEST regarding participating preferred stock? A. The dividend rate is fixed B. The dividend rate varies depending on the decision of the Board of Directors C. The dividend rate is fixed as to maximum but not as to minimum D. The dividend rate is fixed as to minimum but not as to maximum

D. The dividend rate is fixed as to minimum but not as to maximum

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? A. The shareholder can buy a maximum of 15 shares by paying $360 B. The shareholder can buy a maximum of 16 shares by paying $384 C. The shareholder can buy a maximum of 17 shares by paying $408 D. The shareholder can buy a maximum of 18 shares by paying $432

D. The shareholder can buy a maximum of 18 shares by paying $432 The terms of the rights offering are that fractional holdings are rounded up to buy 1 additional share. This person owns 256 shares and thus, will receive 256 rights. 256 rights / 15 rights per share = 17.06 shares, which is rounded up to 18 shares @ $24 each = $432 necessary to subscribe.

Which of the following best describes the duties of a "Rights Agent"? The Rights Agent: A. ensures that all common shareholders have voting rights B. ensures that the correct number of shares are canceled and issued by the transfer agent whenever a transfer occurs C. repurchases company Treasury Stock when market conditions are favorable D. accepts shareholder subscriptions to a rights offering

D. accepts shareholder subscriptions to a rights offering

Which security of the same issuer is likely to give the highest current yield? A. warrant B. common stock C. convertible preferred stock D. non-convertible preferred stock

D. non-convertible preferred stock

All of the following statements are true regarding the effect of the purchase of Treasury Stock EXCEPT: A. the number of outstanding shares is reduced B. the earnings per share is increased C. the market price of the stock will increase D. the number of authorized shares will be reduced

D. the number of authorized shares will be reduced

All of the following statements are true regarding warrants EXCEPT: A. warrants allow the holder to buy the stock of that issuer at a fixed price B. warrants give the holder a long term option to buy the stock C. warrants are attractive to speculators because of the leverage that they offer D. warrant holders have pre-emptive rights

D. warrant holders have pre-emptive rights

A customer buys 100 shares preferred at $110 per share. The par value is $100. The dividend rate is 5%. Each dividend payment will be: A. $250 B. $275 C. $500 D. $550

annual rate is 5% X $100 par value = $5 per share X 100 shares = $500 preferred dividends are paid semi-annually, each payment is $250

A company declares a cash dividend that is 8% higher than the previous dividend rate. Prior to the announcement, the annual dividend yield was 6% and the stock was trading at $25 per share. What is the new dividend payment amount per share? A. $.375 B. $.380 C. $.400 D. $.405

current annual dividend yield is 6% x $25 current share price = $1.50 per year dividend is now increasing by 8% new annual dividend rate will be 1.08 x $1.50 = $1.62. Since common dividends are paid quarterly, the quarterly dividend will be $1.62 / 4 = $.405.

A company that has been growing rapidly announces that it is splitting its stock 3:2 and increasing its cash dividend by 10%. Prior to the announcement, the stock was trading at $60 and the dividend yield was 8%. What will be the next dividend paid per share? A. $.80 B. $.88 C. $1.20 D. $1.32

stock trading at $60 8% of $60 = $4.80 per share 3:2 split, for every 2 shares held, there will now be 3 shares (same as 1.5:1) new share price will be $60 / 1.5 = $40. new annual dividend amount per share before the increase will be $4.80 / 1.5 = $3.20 dividend is increased by 10%, the new annual rate will be $3.52, and the new quarterly dividend payment per share will be $3.52 / 4 = $.88.

A company that has been growing rapidly announces that it is splitting its stock 3:2 and increasing its cash dividend by 20%. Prior to the announcement, the stock was trading at $60 and the dividend yield was 10%. What will be the next dividend paid per share? A. $.90 B. $1.00 C. $1.10 D. $1.20

stock trading at $60 paying annual cash dividend 10% of $60 = $6.00 per share 3:2 split, every 2 shares held, now 3 shares same as 1.5:1 new share price$60 / 1.5 = $40 new annual dividend amount per share before the increase $6.00 / 1.5 = $4.00 dividend is increased by 20% new annual rate = $4.80 new quarterly dividend payment per share = $4.80 / 4 = $1.20