series 7 -- equity
Preferred stock market valuation is based primarily upon:
long term market interest rate levels
Which source could be consulted to find the trading symbol of a stock?
stock exchange website
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):
$0
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?
$0.405 ($25 x 6% = $1.50 -- current annual dividend) ($1.50 x 1.08 = $1.62 -- increase in dividend) ($1.62 / 4 = $0.405 -- quarterly dividend)
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 Wednesday, December 1st, the stock is trading at $24.50. The value of the right is:
$0.50 ($24.50 - $19) / (10 + 1) = $0.50
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:
$0.50 (ex rights not cum rights)
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?
$0.55 ($25 x 8% = $2 annual dividend) ($2 x 10% = 0.2 increase) ($2 + 0.2 = $2.2 new annual dividend) ($2.2 / 4 = $0.55 quarterly dividend)
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?
$0.67 ($10 / 15)
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?
$0.88 ($60 x 8% = $4.80) ($60 / 1.5 = $40) ($40 x 8% = $3.20) ($3.20 x 1.10 = $3.52) ($3.52 / 4 = $0.88)
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 $15, what is the earnings per share?
$1
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 Wednesday, December 1st, the stock is trading at $30. The value of the right is:
$1 (cum rights -- use N+1)
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:
$1,500 (must pay 4% from 2 years ago, 3% from last year, and 8% from this year before common dividend is payed -- 15% x $100)
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?
$1.20 ($60 x 10% = $6 annual dividend) (3:2 stock split = for every 2 shares held, there will be 3) (1.5:1 stock split = 3:2 stock split) ($60 / 1.5 = $40 new share price) ($6 / 1.5 = $4 annual dividend after new share price) ($4 x 1.2 = $4.80 annual dividend after increase) ($4.80 / 4 = $1.20 quarterly dividend)
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):
$100 gain
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:
$13 ($2 + $11)
DEFF ADR represents 20% of the value of a DEFF ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 200 British Pounds (BP). The current exchange rate for the British Pound against the U.S. Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP, with payment made semi-annually. The DEFF ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the NYSE, how much will the customer receive in each dividend payment?
$16,800 (Because the DEFF ordinary share trades for 200 BP in London, and the BP is worth $1.40, each ordinary share is worth 200 x $1.40 = $280. The ADR created for the U.S. market is 1/5th of this amount, or $56 per U.S. ADR. A customer who invests $560,000 will buy $560,000 / $56 = 10,000 ADR shares) (The annual dividend rate per ordinary share is 12 BP, so the semi-annual payment is 6 BP. Since the ADR is worth 1/5th of an ordinary share, this becomes 1.2 BP per ADR share x $1.40 exchange rate = $1.68 per ADR share x 10,000 shares = $16,800)
A customer buys 1,000 shares of ABCD $25 par 8% cumulative preferred stock. This preferred issue pays quarterly dividends. This year, it missed the first 3 quarterly dividends. In the 4th quarter, it paid a common dividend of $.25 per share. In order to do this, it must have paid this preferred shareholder:
$2,000 ($25 x 8% = $2) (1,000 x $2 = $2,000) -- cumulative
DUPA Corp. has a Price/Earnings multiple of 20 and a market price of $45. What was the corporation's Earnings Per Common Share?
$2.25 (market price / multiple)
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:
$200 ($50 x 8% = $4/share x 100 = $400) -- semiannual pmt
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:
$250 (semi annual payments)
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:
$30,000,000 (20,000,000 - 5,000,000) x $2
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):
$370 (100 PS x $102 = $10,200 -- buy shares) (140 CS x $75.50 = $10,570 -- convert & sell shares) ($10,570 - $10,200 = $370 -- profit)
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):
$600 gain (100 PS x $98 = $9,800 -- buys shares) (200 CS x $52 = $10,400 -- convert & sell shares) ($10,400 - $9,800 = $600 -- profit)
XYZZ ADR represents 10% of the value of an XYZZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the U.S. Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP, with payment made semi-annually. The XYZZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the NYSE, how much will the customer receive in each dividend payment?
$8,400 (400 x $1.40 = $560 -- each ordinary share's worth) (1/10 x $460 = $56 -- ADR amount) ($560,000 / $56 = 10,000 -- ADR shares for customer) (1/10 x 6BP x $1.40 x 10,000 = $8,400 -- dividend pmt)
A corporation has issued 50,000,000 shares of common stock at $2 par. The corporation has 10,000,000 shares of Treasury Stock on its books. The aggregate value of the outstanding shares is:
$80,000,000
DEFF ADR represents 20% of the value of a DEFF ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 200 British Pounds (BP). The current exchange rate for the British Pound against the U.S. Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP, with payment made semi-annually. The DEFF ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the NYSE, the customer will buy how many shares of the ADR?
10,000 (200BP x $1.40 = $280 -- ordinary shares worth) ($280 x 20% = $56 -- value of ADR) ($560,000 / $56 = 10,000 -- shares of ADR bought)
XYZZ ADR represents 10% of the value of an XYZZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the U.S. Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP. The XYZZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the NYSE, the customer will buy how may shares of the ADR?
10,000 shares (400 x $1.40 = $560 -- each ordinary share's worth) (1/10 x $460 = $56 -- ADR amount) ($560,000 / $56 = 10,000 -- ADR shares for customer)
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:
100 shares of ABC preferred stock (If ABC declares and pays a 10% "common" stock dividend, the customer who holds convertible preferred stock still would have 100 shares. However, the conversion ratio which was initially 10 to 1 would reflect the stock dividend and would get adjusted to an 11 to 1 ratio (10% additional common shares into which the preferred is convertible). With a new conversion ratio of 11 to 1, the conversion price per share becomes: $100 par / 11 shares = $9.09 per share.)
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:
100 shares of ABC preferred stock (customer is not benefitted in any way)
ABC Corporation has declared a rights offering to stockholders of record on 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. A customer owning 111 shares wishes to subscribe. The market price of the stock is currently $30. The customer can buy:
12 shares for $228 (111 / 10 = 11.1 --> rounds to 12 x $19 = $228)
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?
20 shares (400 / 20)
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
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. The customer will receive:
400 rights
ABC 8% $100 par preferred is trading at $120 in the market. The current yield is:
6.7% (8% x $100) / $120
PDQ Company $1 par common stock currently trading at $55. PDQ is currently paying a quarterly common dividend of $1.10 per share. The current yield of PDQ stock is:
8% (remember ANNUAL yield / market price)
ABC 10% $100 par preferred is trading at $120 in the market. The current yield is:
8.33% (10% x $100) / $120
ABC 10% $100 par preferred is trading at $115 in the market. The current yield is:
8.7% ($10 / $115)
PDQ Company $10 par common stock is currently trading at $40. PDQ is currently paying a quarterly common dividend of $.90 per share. The current yield of PDQ stock is:
9% (remember ANNUAL yield / market price)
A foreign security held in foreign branches of U.S. bank is a(n):
ADR
Which statement is TRUE about American Depositary Receipts?
ADR market prices are subject to foreign currency exchange fluctuations
Dividends are paid to the holders of which of the following?
ADRs (not warrants, rights, or treasury stock)
All of the following statements are true regarding the trading of ADRs EXCEPT:
ADRs are traded on the chicago board options exchange (only options are traded there)
ABC Corp. has a convertible preferred issue with an "anti-dilutive" covenant. ABC declares a stock dividend. After the stock dividend is paid, which statements are TRUE? I The conversion price is decreased II The conversion price is unaffected III The conversion ratio is increased IV The conversion ratio is unaffected
I and III (When a senior convertible security is issued with an "anti-dilutive" covenant, should the company issue additional common shares, the terms of conversion are adjusted. Additional common shares will be issued, and since there are more common shares now outstanding, each share will be worth proportionately less. To adjust the terms of conversion, the conversion price is reduced, and the number of common shares into which the security is convertible (the conversion ratio) is increased)
Which of the following statements are TRUE regarding warrants? I Warrants are typically issued with an exercise price that is higher than the stock's current market price II Warrants are typically issued with an exercise price that is lower than the stock's current market price III Warrants would be exercised when the stock's market price is below the warrant strike price IV Warrants would be exercised when the stock's market price is above the warrant strike price
I and IV
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
I and IV
Which statements are TRUE about the time value and intrinsic value of rights and warrants when issued? I Warrants have time value but not intrinsic value II Warrants have intrinsic value but not time value III Rights have time value but not intrinsic value IV Rights have intrinsic value but not time value
I and IV
A corporation issues $100 par convertible preferred stock, convertible at $20 per share when the common stock is trading at $10. 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 is adjusted to $16II The conversion price is adjusted to $25III The conversion ratio is adjusted to 4:1IV The conversion ratio is adjusted to 6.25:1
I and IV (Under an "anti-dilutive" covenant, if there is a stock split or stock dividend resulting in the issuance of additional common shares, the conversion price and hence the conversion ratio are adjusted to reflect the fact that the market price of each common share will drop on the ex date. Prior to the stock dividend, the conversion price was $20 per share. If there is a 25% stock dividend, the new conversion price will be adjusted to $20/1.25 = $16 per share. Since each preferred share is $100 par, the new conversion ratio will be $100/$16 = 6.25)
ABC Corporation has recently completed a $20,000,000 offering of 10% debenturesdue 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
I, II, III, and IV ("under water" means out of the money)
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
I, II, and III
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
I, II, and IV (FINRA sets ex date)
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
II and III
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? I The customer will receive 100 rights II The customer will receive 500 rights III The customer may buy 100 shares IV The customer may buy 500 shares
II and III (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 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
II and III (Under an "anti-dilutive" covenant, if there is a stock split or stock dividend resulting in the issuance of additional common shares, the conversion price and hence the conversion ratio are adjusted to reflect the fact that the market price of each common share will drop on the ex date. 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 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
III and IV
Which of the following are functions of a corporation's Board of Directors? I Mailing dividend payments to shareholders II Canceling old shares and issuing new shares III Preparing and mailing proxies IV Setting the Declaration Date
IV only
American Depositary Receipts pay dividends in:
USD
Which of the following best describes the duties of a "Rights Agent"? The Rights Agent:
accepts shareholder subscriptions to a rights offering
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
When the market price of ACME Common stock is at $45, which of the following actions, when completed by ACME Corporation, would raise additional capital?
announcement of a rights distribution allowing existing shareholders to buy the stock at $35/share
If a corporation wishes to sell additional shares, which of the following persons can subscribe using pre-emptive rights?
common stockholders
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?
conversion ratio is 5:1 ($50 / $10)
During periods of stable interest rates and increasing stock prices, which type of preferred stock will have the greatest price volatility?
convertible
Income from all of the following securities is partially tax exempt to a corporate investor EXCEPT:
convertible bonds
Which of the following do NOT have an equity position?
convertible debenture bondholders
Preferred stocks are most often suitable investments for the:
corporate investor (can exclude 50% of dividends received from taxation)
Common stockholders and preferred stockholders BOTH have:
dividend rights
ADRs are used to:
facilitate trading of foreign securities in the US
All of the following features are common to both preferred stock and bonds EXCEPT:
fixed maturity date (only bonds)
Which statement is TRUE regarding participating preferred stock? Participating preferred:
has a dividend rate that is fixed as to a minimum but not as to a maximum
Callable preferred stock is likely to be redeemed by the issuer if:
interest rates fall (If interest rates fall, issuers can "call in" old high rate preferred and replace it by selling new preferred at the lower current rates. Thus, calls take place when interest rates have fallen)
The essential difference between a sponsored and an unsponsored ADR is:
issuer sponsorship
The transfer agent is typically responsible for all of the following functions EXCEPT:
maintaining the integrity of the record of all shareholder name and addresses
Which security of the same issuer is likely to give the highest current yield?
non-convertible preferred (Warrants give no yield. Common stocks give the lowest yields since there is direct growth potential in the price of the stock as reported earnings increase. Convertible preferred yields are higher than common yields but not as high as non-convertible yields. A non-convertible preferred stockholder gets a fixed rate of return without any growth potential. A convertible preferred stockholder can convert to common if the common's price rises, so growth potential is included. Because of this, yields for convertible preferred are lower than for non-convertible preferred)
If a company repurchases its own common shares, the number of:
outstanding shares will decrease
During periods of stable interest rates, which type of preferred stock will have the greatest price volatility?
participating (Participating preferred gives the preferred shareholder the right to participate with common in any "extra" dividends declared by the Board of Directors. If these extra dividend payments are made, this can cause the preferred stock price to rise even though interest rates have not fallen)
If interest rates fall, issuers most likely will call:
preferred issues with above market interest rates
All of the following terms describe rights EXCEPT:
redeemable
All of the following are terms associated with preferred stock EXCEPT:
renewable (preferred stock is negotiable, meaning can be traded)
A corporation is attempting to sell additional shares to its existing shareholders through a rights distribution. A shareholder who wishes to subscribe must send the purchase amount with the rights certificate to the:
rights agent
All of the following are functions of the transfer agent EXCEPT:
setting the declaration date
A corporation issues $50 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 2.5:1 ($50 / $20)
Which statement is TRUE regarding rights?
the exercise price of a right is set at a discount to the stock's current market price
All of the following statements are true regarding the effect of the purchase of Treasury Stock EXCEPT:
the number of authorized shares will be reduced
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. Once the notice of call has been circulated, it can be expected that:
the number of common shares outstanding will increase and earnings per share will decrease
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?
the shareholder can buy a maximum of 11 shares by paying $220
Which statement is TRUE about non-sponsored ADRs?
these ADRs are created without the participation of the foreign corporation
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?
thursday, november 17th (ex date is friday, november 18th)
Which statement is FALSE regarding Treasury Stock?
treasury stock has voting rights
A middle-aged widowed customer has an investment objective of stable income and wants minimal market and liquidity risk. What type of preferred stock would be the BEST recommendation?
variable rate preferred (minimal market risk because it adjusts w market)
Which function would be performed by the registrar?
verifying the record of all shareholder names and addresses
All of the following statements are true regarding warrants EXCEPT:
warrant holders have preemptive rights
All of the following statements are true regarding warrants EXCEPT :
warrants generally have a life of 2 months
Which statement is TRUE about preferred stock?
when interest rates rice, preferred stock prices fall
