Training Consultants- Chapter 1: Equity Securities- Question set #1
An investor is interested in a REIT that will provide immediate income. Which REIT would best meet the investor's objective? a) A mortgage REIT b) a hybrid REIT c) An equity REIT invested in developing land d) Any type of REIT
A
Which of the following are true of warrants? a) The market price of the stock is below the exercise price when they are issued b) All are perpetual c) They pay dividends d) The market price of the stock is considerably above the exercise price when they are issued
A
Which of the following types of preferred stock may receive more than the stated dividend? a) Cumulative and participating b) preemptive preferred c) preemptive preferred only d) secured preferred only
A
A customer wants to invest in preferred stock. His key objective is to maintain consistent current income from dividends. which of the following types of preferred stock would be most suitable for his customer? a) Cumulative preferred b) Participating preferred c) Callable preferred d) Convertible preferred
A- Cumulative preferred
Which of the following is TRUE of warrants? a) When the warrants are issued, the market price of the underlying stock would be below the exercise price. b) They are all issued as perpetual warrants c) They pay dividends
A- When the warrants are issued, the market price of the underlying stock would be below the exercise price.
A corporation's directors have declared a cash dividend on common stock and have specified the stock record date. Based on the above information which one of the following is INCORRECT? a- The ex-date will be set one business day prior to the stock record date b- The stock record date will determine who is entitled to receive the dividend
B- The stock record date will determine who is entitled to receive the dividend
Which of the following is an advantage to investors purchasing a REIT? a- There are no min. investment requirements and REITs have a direct correation to the value of other financial assets b- There are no minimum investment requirements and REITS have a low correlation to the value of other financial assets
B- There are no minimum investment requirements and REITS have a low correlation to the value of other financial assets
Issued by a nationally known company with a reputation for quality management, producers and services.
Blue Chip Stock
The following are characteristics of what kind of stock: -Ability to pay dividends in good and bad times -Many Maintain 50% dividend payout ratio -customers who buy this stock can expect regular quaterly dividend income -Investment obejective is capital appreciation and regular dividend income
Blue Chip Stock
A common stockholder in a corporate liquidation has a a) Priority claim on the assets b) Claim on the assets prior to preferred stockholders c) Residual claim on the assets d) Claim on the assets prior to subordinated lenders but after secured creditors
C - Residual claim on the assets
Stocks that move in the opposite direction of the economy
Countercyclical Stock
The following are examples of what kind of stock: - Gold Mining Companies -Budget retailers (Walmart) - Time Agencies
Countercyclical Stock
The following are examples of what kind of stock: - Auto Manufactures -Steel companies - Appliances manufactres - Paper companies - Tool and die manufactres - Housing companies
Cycical Stock
Heavily affected by normal business and economic cycles- Rise and decline along with the rise and fall in the economy
Cyclical Stock
Which of the following features on preferred stock allows investors to receive unpaid dividends prior to the payment of dividends to common stock shareholders? a) A participation feature b) A conversion feature c) A call feature d) A cumulative feature
D- A cumulative feature
Prior to repurchasing its own shares in the open market, a corporation would usually be required to: a) Amend its initial registration statement b) Get approval of the holders of common stock c) Get approval from the SEC d) Get approval from the BOD
D- Get approval from the BOD
Which of the following industries is most cyclical? (select a letter) a) Retail b) Tobacco c) Natural gas d) Home appliances
D- Home appliances]
Dividend payout ratio formula
DPS/ EPS
The primary purpose of stock split is to
Decrease the market price of common stock. which increases the stock marketability
The following are examples of what kind of stock: - Tobacco companies -Utilies - Food companies - Pharmaceutical - Auto repair companies *Does not include Steel companies, such as auto manufactuers or tool and die manufactuers
Defensive/ non-cycical stocks
Stock that is issued by a company that is resistant to normal business cycles and general stock market fluctations. No signifacnt increase or growth, but stable and consistent earnings year after year can be expected
Defensive/ non-cyclical stock
Dividends per share (DPS) formula
Div's paid to common share holders / Outstanding common shares
A company with total annual gross less than 1.07 billion during its most recently completed fiscal year. High risk,high return and high failure rates
Emerging growth comapny
Stock issued by a company that is expected to have above average increase in revenues and earnings.
Growth Stock
The following are characteristics of what kind of stock: - High percentage of retained earnings - Pay little to no dividends, resulting in low dividend yield and increase in shareholders equity -Generally have a high proce to earnings ratio - Stock price may flucate widely and typically have high volatlity
Growth stock
What is 1. Not Redeemable 2. Not an investment company 3. Not regulated under the Investment Company Act of 1940 4. Not a DPP or limited partnership
REITS
Stocks that are undervalued and their price can increase in value suddenly due to a number of reasons - New Management - Intro of popular new project(s) - Discovery of a natural resource on corporate property
Special Situtions Stocks
The following are characteristics of what kind of stock: - Highly leveraged- customers are dependent -changes in interest rates will have more of an effect on common stock - High level of debt means high cost of opertions ( includes interest costs) - increases in interest rates will cause an increase in operating expenses for highly leveraged companies
Utility stock
Provide electricity, gas, water, etic. to their customers. Stocks offer high dividends, generally offer above average dividend yields, but less capital appreication compared to growth stocks
Utility stocks
Mr.Smith has owned 400 shares of ABC common stock for several years. ABC announces a 3:2 stock split. How many additional shares of ABC will Mr. Smith own after the stock split? a) 200 shares b) 400 shares c) 600 shares d) 1200 shares
a- 200 shares
As inflation increases over time the best hedge against it has historically been provided by which of the following types of securities? a) common stocks b) preferred stocks c) government securities (t-bonds) d) convertible bonds
a- common stocks
Current annual dividend / current market value =
annual dividend yield
An investor buys 100 shares of ABC common stock at $85.50/share. The stock pays a quarterly dividend $1. If the common stock is currently trading at 95.50 per share, what is the current annual dividend yields? a) 1.08% b) 4.19% c) 4.51% d) 4.68%
b- 4.19%
Jack owns 300 shares of cumulative, convertible preferred stock. Which statement is false regarding this situation? a) Jack receives dividend payments before common shareholders b) The issuing company could call the stock at par value c) Jack can convert his shares to common stock at any time d) Jack will receive any deferred or omitted dividends before common shareholders can receive dividend.
b- The issuing company could call the stock at par value
Which of the following happens when a company declares a stock split? a) There is a reduction in the company's earned surplus account and an increase in its capital account b) The proportionate share of ownership the company by each stockholder does not change
b- The proportionate share of ownership the company by each stockholder does not change
Which of the following is NOT true of convertible preferred stocks? a) Stated dividend payments are no longer paid after the stock is converted b) The shares must be surrendered on the call price c) When the preferred shares are converted, dilution takes place d) They usually carry a lower dividend rate than nonconvertible preferred stocks
b- The shares must be surrendered on the call price
Common stock shareholders have all of the following rights EXCEPT? (select a letter) a) Vote for directors b) Vote for officers c) Supervoting shares d) received declared dividends
b- Vote for officers
Cash dividends paid to investors: a) are exempt from tax liability b) are subject to federal, state and local tax c) reduce the cost basis of the common stock d) increase the cost basis of the common stock
b- are subject to federal, state and local tax
REITs can pass through all of the following to investors except: a) dividends b) capital losses c) capital gains d) interest
b- capital losses
All of the following are correct regarding common stock EXCEPT: a) Common share may be held in street name by a broker-dealer b) common shares may be called by the issuing corporation after a specified date c) common shares may be used as collateral for a loan in a margin account d) Ownership of common shares may be transferred with proper assignment on the back of a stock certificate
b- common shares may be called by the issuing corporation after a specified date
An emerging growth company is generally defined as a company with total annual a- gross rev. of more than $1 billion for its most recent fiscal year b- gross rev. of less than $1.07 billion for its most recent fiscal year c- gross profits of less than $1 billion for its most recent fiscal year d) net profits of more than 1.07 billion for its most recent fiscal year
b- gross rev. of less than $1.07 billion for its most recent fiscal year
Preferred stock has priority over common in which of the following ways? a) payment of dividends and voting status b) payment of dividends and bankruptcy priority c) voting status and bankruptcy priority d) voting status and receipt of stock rights
b- payment of dividends and bankruptcy priority
Which of the following best describes the requirement that a corporate charter requires the corporation to offer any new shares to the existing shareholders before offering the shares of the public? a) participation clause b) preemptive rights clause c) front-running clause d) dilution clause
b- preemptive rights clause
common stock shareholders have all of the following rights EXCEPT (select a letter) a) vote for directors b) vote for officers c) supervoting shares d) receive declared dividends
b- vote for officers
A corporation uses the statutory voting method. The shareholder owns 200 shares, and there are five vacancies up for re-election. What is the maximum number of votes the shareholder may cast for any one vacancy? a) 1 b) 5 c) 200 d) 1,000
c - 200
A corporation has issued 10 million shares of common stock that are currently trading for $5/share. There are 2 million shares of treasury stock. What is the total value of outstanding common shares? a) $8 million b) $10 million c) $40 million d) $60 million
c- $40 million
Using the following financial information regarding Steele Co, calculate its dividend payout ratio: Total cash dividends paid to common shareholders: $10,000,000; Total outstanding common shares:$5,000,000; EPS: $5 a) 50% b) 100% c) 40% d) 60%
c- 40%
Which of the following industries is LEAST defensive? a) Clothing b) Automobile repair c) Automobile production d) Utilities
c- Automobile production
Which of the following is generally considered to be a defensive stock? a) Companies whose shares trade on NYSE only b) Foreign companies that sell predominantly to U.S. consumers c) Consumer good and food production companies d) Companies with defense contracts with the U.S. Government
c- Consumer good and food production companies
ABC Corporation will be performing a preemptive rights offering. Which of the following is TRUE a) The corporation is offering long-term options to buyers of bonds to buy stock at a price that is currently above the market price b) The corporation is changing the rights that shareholders have association with their shares c) The corporation is selling additional shares and must provide existing shareholders with the ability to maintain their proportionate ownership
c- The corporation is selling additional shares and must provide existing shareholders with the ability to maintain their proportionate ownership
An investor that has received rights through a preemptive rights offering could do all of the EXCEPT: a) sell the rights in the open market b) exercise the rights and subscribe to additional common shares c) redeem the rights for their cash value d) let the rights expire worthless
c- redeem the rights for their cash value
A security which gives the holder the privilege of investing in a company's stock at a pre-determined price at any time, over a long period of time is known as a a) coupon b) right c) bond d) warrant
d -warrant
ABC Corporation has issued an 8% Cumulative Preferred Stock ($100 par). In 2018 ABC paid a 4% dividend, in 2019 ABC did not pay any dividend, and in 2020 ABC wants to pay a dividend to its common stockholders. ABC would first have to pay how much in dividends to its Preferred Stockholders first? a) $4 b) $8 c) $12 d) $20
d- $20
Which of the following is a defensive stock? a) Aerospace company b) Food company debenture c) Blue chip d) Public utility
d- Public utility
Which of the following is most likely to fluctuate in value during a period of stable interest rates? a) cumulative preferred stock b) participating preferred c) senior preferred d) convertible preferred
d- convertible preferred
The primary purpose of a stock split is to a) increase the mkt price of the common stock b) increase each stockholder's proportionate ownership c) increase the assets of the corporation d) decrease the mkt price of the common stock
d- decrease the mkt price of the common stock
Public utility common stocks generally experience greater price volatility than the common stocks of industrial companies due to which of the following? a) changes in the S&P 100 index value b) computation of the consumer price index c) net tangible asset value d) fluctuations in interest rates
d- fluctuations in interest rates
All of the following are rights of common stockholders EXCEPT to a) Vote for members of the Board of Directors B) inspect the corporate books c) receive a pro rata share of dividends declared by the BOD d) vote for the amount of stock dividends they will receive
d- vote for the amount of stock dividends they will receive
