Equities
The transfer agent will typically perform which of the following functions? I Canceling old stock certificates II Issuing new stock certificates III Acting as disbursement agent for the corporation IV Maintaining the integrity of the record of all shareholder names and addresses
It is the responsibility of the registrar to maintain the integrity of the shareholder list, and to ensure that the number of shares transferred from one shareholder to another always matches. The transfer agent will cancel old shares, issue new shares, and act as disbursement agent for the corporation.
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:
The annual rate is 5% X $100 par value = $5 per share X 100 shares = $500. Since preferred dividends are paid semi-annually, each payment is $250.
ABC Corporation has declared a cash dividend to stockholders of record on Monday, November 21st. The last day to buy ABC shares BEFORE they go ex dividend is?
The regular way ex date is 1 business day prior to the record date. The record date is Monday, November 21st, therefore the ex date is Friday, November 18th. To buy the shares before they go ex dividend, the shares must be purchased before Friday, November 18th, meaning they must be purchased on Thursday, November 17th.
Which of the following statements about warrants are TRUE? I Warrants are issued to make corporate senior securities offerings more attractive to investors II Warrants give the holder a perpetual interest in the issuer's underlying common stock III Warrants trade separately from the stock of the company IV Warrants have a longer term than rights
Warrants are typically attached to debt and preferred stock offerings (these securities are "senior" to the common stock of the issuer) to make the securities more attractive to purchasers. Warrants trade separately from the stock of the company. And lastly, warrants typically have a fixed life of 5 years or less and then expire (this is longer than the expiration of rights). Perpetual means everlasting. Companies can issue perpetual warrants, but rarely do so.
Which of the following statements are TRUE regarding the rights agent? I The rights agent usually handles the mechanics of a rights offering II The rights agent is usually the existing transfer agent of the issuer III The rights agent issues the additional shares upon presentation of the rights certificates with payment
A rights agent is hired to handle the mechanics of a rights offering. The rights agent is usually the existing transfer agent of the issuer. To subscribe, the existing shareholders submit their rights with the subscription dollar amount to the rights agent.
If interest rates fall, issuers most likely will call: I low dividend rate preferred issues II high dividend rate preferred issues III preferred issues trading at a premium IV preferred issues trading at a discount
If interest rates fall, issuers most likely will "call in" old high rate preferred and replace it by selling new preferred at the lower current rates. High rate preferred will sell at a premium if market interest rates are dropping.
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
Participating preferred pays a fixed dividend rate but also participates with common in "extra" dividends declared by the Board of Directors. Therefore, the dividend is fixed as to the minimum amount but not as to the maximum amount.
POP Company has issued 11%, $100 par cumulative preferred stock. Two years ago, POP paid a preferred dividend of $9. Last year, it paid a preferred dividend of $11 per share. This year, POP wishes to pay a common dividend. In order to make the distribution to common shareholders, each preferred share must be paid a dividend of:
Since the preferred stock is cumulative, to make a dividend distribution to common shareholders, the company needs to pay all back, unpaid dividends plus this year's dividend (before a common dividend can be made). The stated dividend rate on the preferred is 11% based on $100 par. Two years ago, 9% was paid, so there is a 2% dividend due. Last year, the corporation paid 11%, so there is nothing additional due. Also, this year's dividend of 11% must be paid. The total dividend that must be paid is 13% or $13 per preferred share before a common dividend can be paid.
XYZ Company has issued 10%, $100 par non-cumulative preferred stock. Two years ago, XYZ omitted its preferred dividend. Last year, it paid a preferred dividend of $5 per share. This year, XYZ wishes to pay a common dividend. In order to make the distribution to common shareholders, each preferred share must be paid a dividend of:
Since the preferred stock is noncumulative, to make a dividend distribution to common shareholders, the company need only make this year's preferred dividend distribution. The stated dividend rate on the preferred is 10% based on $100 par, so $10 of preferred dividends must be paid per share. If this preferred were cumulative, then all omitted dividends must be paid before a distribution can be made to common. Please note that almost all preferred stock issues are cumulative - but non-cumulative issues must still be known for the exam.
Stockholder approval is needed if a corporation wishes to: I pay a cash dividend II split its stock 2 for 1 III repurchase shares for its Treasury IV issue convertible securities
Stockholder approval is needed for a stock split, because it changes the par value of the stock. The State in which the company is incorporated typically requires shareholder approval of a par value change. In contrast, dividend decisions, either in cash or stock, do not require shareholder approval because they are "paid" out of retained earnings and do not affect par value per share. They are made solely by the Board of Directors of the company. Issuance of convertible securities requires shareholder approval because it is potentially "dilutive" (if the securities are converted, there will be more common shares outstanding, and earnings per common share will fall). The repurchase of shares for Treasury will boost earnings per share, because there will be fewer shares outstanding. This boosts the value of the existing common shares, so no shareholder approval is required. This is another decision that is made solely by the Board of Directors.
Which statements are TRUE when comparing statutory versus cumulative voting? I Cumulative voting is considered to be an advantage for the small investor II Statutory voting is considered to be an advantage for the small investor III Cumulative voting allows for disproportionate voting weight to be placed on selected directors IV Statutory voting allows for disproportionate voting weight to be placed on selected directors
Under "cumulative" voting, shareholders can accumulate their votes and place them on any directorship (or combination of directorships). Thus, minority shareholders who place all of their accumulated votes on 1 director have a reasonable chance of electing that person. This is why cumulative voting is considered an advantage for the small investor. With statutory voting, one cannot accumulate votes. Under this method, each shareholder can only cast as many votes as he or she has shares for each directorship
Which of the following terms describe rights? I Exercisable II Negotiable III Redeemable IV Giftable
Rights are exercisable, negotiable (as they can be sold), and giftable (as they can be given to someone as a gift). Rights are not redeemable with the issuer.
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
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.
Which statements are TRUE regarding ADRs? I Dividends are declared by the issuer of the underlying stock in U.S. dollars II Dividends are declared by the issuer of the underlying stock in the foreign currency III Receipt holders receive dividend payments in U.S. dollars IV Receipt holders receive dividend payments in the foreign currency
The foreign corporation whose shares are "packaged" into an ADR declares any dividend in its currency. The bank that assembled the ADR converts the dividend to U.S. dollars and remits it to the ADR holders.
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?
The conversion ratio is Par Value / Conversion Price. $100 Par / $20 Conversion Price = 5:1 Conversion Ratio.
PDQ Corporation has declared a rights offering to stockholders of record. The company has 5,000,000 shares outstanding and is selling an additional 1,000,000 shares via the rights offer. Which statements are TRUE regarding a customer who owns 500 shares of PDQ stock?
Each outstanding share gets 1 right, so there will be 5,000,000 rights issued / 1,000,000 new shares = 5 rights needed to buy 1 new share. The customer who owns 500 shares gets 500 rights. Since 5 rights are needed to buy 1 new share, the customer can buy 100 additional shares.
A customer holds 100 shares of ABC Corp $100 par non-convertible preferred stock. If ABC declares and pays a 10% common stock dividend, then as of the payable date, the customer will now have:
If ABC declares and pays a 10% "common" stock dividend, the customer who holds non-convertible or convertible preferred stock would not benefit in any way. Thus, due to the payment of a common stock dividend, the customer would still have 100 shares of the non-convertible preferred stock.
