MODULE 1 EQUITIES: QUIZ

3. ABC 10% $100 par preferred is trading at $120 in the market. The current yield is: a. 5% b. 8.33% c. 10% d. 125

B. Annual income ($10) ----------------------- = current yield Market price ($1200

2. Common dividends are usually paid: a. monthly b. quarterly c. semi-annually d. annually

B. common dividends are usually declared and paid quarterly

In corporate liquidation, the last to get paid is: a. unpaid wages and taxes b. bondholders c. preferred stockholders d. common stockholders

D. in a corporate liquidation, common stockholders are paid after everyone else.

1. Which of the following terms describes common stock? a. negotiable b. redeemable c. non-negotiable d. callable

A. common stock is a negotiable (transferrable) security. It is not redeemable with the issuer nor is it callable by the issuer

3. Voting of the common stockholder is required for all of the following EXCEPT: a. when a corporation declares a stock split b. when a corporation declares a stock dividend c. when a corporation wishes to issue convertible securites d. deciding whether to accept a tender offer for the companies shares

B. dividends decisions are made by the Board of Directors-no shareholder approval is required. This is true whether a cash or stock dividend is being declared. Changes in equity capitalization of a company require shareholder approval. A stock split changes par value per share, which requires a shareholder vote. The issuance of convertible security (which can be converted to equity) is potentially dilutive to the existing common shareholder. They must vote to permit this

5. Common stockholders and preferred stockholders BOTH have: a. voting rights b. pre-emptive rights c. dividend rights d. subscription rights

C. both common and preferred shareholders have the right to receive dividends, if declared by the BOD. Common shareholder have both voting rights and preemptive/subscription rights (the right to maintain proportionate ownership if the issuer issues additional common shares). Preferred stockholders do not have voting rights and do not have preemptive/subscription rights

Cumulative voting is considered to be advantageous to the: a. large investor b. influential investor c. small investor d. novice investor

C. cumulative voting allows a disproportionate voting weight to be placed on selected directors and is considered to be an advantage for the small investor who wishes to have specific directors elected.

1. All of the following statements are true about preferred stock EXCEPT a preferred dividends are paid before common b. in most cases dividends are paid semi-annually c. corporations must pay preferred dividends d. preferred shareholders are paid before common shareholders upon liquidation of a corporation

C. preferred stock has preference over common as to the payments of dividends and as to assets upon liquidation. Preferred dividends are, in most cases, paid semi-annually. The Corporation will only pay the preferred dividend if the BOD decides. There is no legal obligation to pay the preferred, however, if it is not paid, investors will not find the stock attractive and won't invest in it

2. As interest rates rise, preferred stock prices will: a. remain unaffected b. rise c. fall d. fluctuate

C. preferred stock is a fixed income security whose prices move inversely with interest rates. As interest rates rise, preferred stock prices fall, so that the preferred will give a yield that is competitive with the current market

4. All of the following are terms associated with preferred stock EXCEPT: a. callable b.cumulative c. redeemable d. convertible

C. preferred stok is not a redeemable security - it is a negotiable security. The stock cannot be redeemed with the issuer - an investor who wishes to liquidate must sell the stock in the market. Preferred stock can be callable, cumulative, and convertible