ULTIMATE UNIT 2 REVIEW

An investor interested in quarterly income should invest in A) Treasury bonds. B) STRIPS. C) corporate bonds. D) utility company stock.

utility company stock.

Which of the following statements is correct concerning currency risk when investing in an American depositary receipt (ADR)?

Currency risk is still a factor when purchasing an ADR

Which of the following statements is correct concerning currency risk when investing in an American depositary receipt?

Currency risk is still a factor when purchasing an ADR

A customer purchases 100 American depositary receipts (ADRs) of a London-based company. When does the trade settle?

Two business days following the trade date

Your customer owns 2,200 shares of LMN common stock. LMN Corporation Issues stock rights related to an additional offer of shares that will increase the company's common shares by 20%. How many rights will your customer receive?

2,200 right - shareholders receive one right per share owned

Two years ago Joshua Ryan bought 100 shares of XYZ at $60 per share. While he held the stock, it paid dividends of $1 the first year and $1.50 the second year. Joshua sold the shares at $40 per share after a 2:1 stock split. How much gain or loss did he incur per share for tax purposes?

$10 (Dividends are not part of the calculation for gain or loss)

LMN Corporation has a $60 par, 4% preferred stock currently trading at $45 per share. Its annual dividend is

$2.40 (Reasoning: for preferred shares, the annual dividend is stated as a percentage of par - 60 x 4%)

DEF Corporation has 4% noncumulative preferred stock outstanding. The company eliminated its dividend payments for the past three years but now is in a position to resume paying them again. Before paying common shareholders a dividend, the company would be required to pay the preferred shareholders

$4.00 (4% x 100 par value = $4)

Under the rules, a penny stock is defined as an unlisted, security trading at less than

$5 per share

Harry's Burgers has announced a tender offer for 20 million shares of Jim's Junkfood Corner at $30 a share. If Harry's secures all the shares then they will control Jim's. The shareholders of Jim's, that submit their shares to the tender offer, will realize which of these?

- A capital loss occurs if their cost basis is greater than the tender price. - A capital gain occurs if their cost basis is less than the tender offer.

Rule 144 limits the amount of shares an affiliate of a company may sell to

1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater.

Your client bought 100 shares of ABC at $50 per share and later received a 10% stock dividend. What is her new cost basis per share? How many shares does she now have?

110 shares at $45.45

A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares?

25 shares

Your customer owns 300 shares of BigCo, Inc., common stock. In the upcoming election there are three open board seats. If BigCo operates under a cumulative voting system, how many votes does the customer have in that vote?

900 votes that may be cast among the seats in any way they choose

Your customer owns 300 shares of BigCo, Inc., common stock. In the upcoming election there are three open board seats. If BigCo operates under a statutory voting system, how many votes does the customer have in that election?

900 votes, no more than 300 votes for any one seat

An investor interested in quarterly income should invest in

A common stock paying a high dividend

An investor owning 500 shares of stock worth $40 per share receives notice that the stock will undergo a split. When the split is completed, the investor owns 400 shares of stock worth $50 per share. The split must have been

A reverse split and an uneven split

An investor who is an affiliate of XYZ corporation holds shares of restricted XYZ stock. These shares have

A six-month holding period and are subject to volume limites for as long as the investor is an affiliate

A corporation divests itself of all of the shares of another company it owns. This is known as

A spin-off

A company's board of directors has voted to divest itself of all shares of a subsidiary to create a new company. This is a type of corporate action best characterized as

A spinoff

Which of the following statements is correct concerning the pricing of American depository receipts (ADRs)?

ADR pricing is dollar based using an end of day net asset value (NAV)

By purchasing shares of stock in a company, investors can benefit from which of the following?

An increase in the price of the shares & the receipt of profits to be distributed

Which of the following would not require delivery of notice? A. an interest payment on a corporate bond B. 2:1 stock split C. Payment of a cash dividend D. A rights offering

An interest payment on a corporate bond

All of the following are considered control persons (owning common stock) except a. an unaffiliated shareholder owning 8% of the outstanding shares b. a director on the board of directors (BOD) owning 2% of the outstanding shares c. the corporation's CFO owning 1% of the outstanding shares d. an officer of the corporation owning less than 1% of the outstanding shares

An unaffiliated shareholder owning 8% of the outstanding shares

An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that

Any shares sold will be subject to volume restrictions if still an affiliate

Transactions where the penny stock rules are applicable would be those that

Are solicited

Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit?

If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting & If the matters to be voted on are of major importance

A customer has held an account with a broker-dealer for over one year. A registered representative associated with the firm recommends the purchase of an unlisted security trading at $3.50. What documentation, if any, is required prior to the trade?

Both suitability and disclosure statements must be obtained

All else being equal, which of the following preferred would pay the highest dividend? a. Callable preferred b. straight preferred c. cumulative preferred d. participating preferred

Callable preferred - is a benefit to the issuer

An example of a fixed-income security would include all of the following except A. preferred stock that has historically paid dividends B. Common stock that has historically paid dividends C. A money market instrument that has historically made timely interest payments D. A municipal bond that has historically made late interest payments

Common stock that has historically paid dividends

Which of the following is not an example of a fixed-income security

Common stock that has historically paid dividends

Which of the following preferred issues is most likely to fluctuate in line with the issuer's common shares?

Convertible

Jim Davis bought 100 shares of QRS at $60 per share and then the company declared a 3:2 split. What is Davis' new cost basis and how many shares does he have now?

Cost basis is $40 per share & He now has 150 shares

The common stock of a U.S. corporation and an American depository receipt (ADR) issued in the United States share all of the following types of risk except A. business risk B. regulatory risk C. Market risk D. Currency risk

Currency risk

List the dates associated with dividend payment in their proper order.

Declaration date, ex-dividend date, record date, pay date (DERP)

What is the primary benefit for an American investor when purchasing an American depositary Receipt?

Diversification

Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her? A. Long Beach Electric, a utility B. BuyMore, Inc., a big-boc retailer with a long history of healthy dividend payments C. Duratech common stock, an exciting new tech manufacturer D. Generic Motors, Inc, 4% preferred stock

Duratech common stock, an exciting new tech manufacturer

Why would a foreign corporation want to see American depositary receipts issued for its common stock?

Easier to access to U.S. capital markets

In the dividend disbursement process three of the four critical dates are determined by the board of directors (BOD) but one is determined by either Financial Industry Regulatory Authority (FINRA) for OTC stocks or the exchange for listed stocks. Which one is it?

Ex-dividend date

For preferred shares, the annual dividend payment is

Fixed and stated as a percentage of its par value

A common stockholder's voting rights apply to which of the following? I. Election of the board of directors (BOD) II. Declaration of dividends III. Authorization or issue of more common shares IV. Changing suppliers for raw material or parts used in production

I and III

An investor and his mother own 20% and 10%, respectively, of a corporation's outstanding shares, and the mother wants to sell all of her holdings. According to Rule 144, which of the following statements are true? I. She must file Form 144 to sell the shares. II. She does not have to file Form 144 to sell the shares. III. She is considered an affiliated person. IV. She is not considered an affiliated person.

I and III

ABC Corporation's board directors declared a $0.25 per share dividend on Wednesday, June 15. The dividend will be paid to shareholders of record on Tuesday, July 5. The dividend will be sent to shareholders on Tuesday, July 26. What is the last day to purchase the stock and receive the dividend, assuming a regular day settlement?

June 30 - the last day to purchase the stock and qualify for the dividend is the day before the ex date (July 1)

Owning an American depositary receipt (ADR) effectively eliminates which of the following risks?

Liquidity risk

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, September 13. The dividend will be paid to holders of record of BigBox common stock as of Tuesday, September 27, and will be paid Wednesday, October 12. What is most likely the ex-dividend date for this dividend?

Monday, September 26th

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, September 13. The dividend will be paid to holders of record of BigBox common stock as of Tuesday, September 27, and will be delivered to shareholders on Wednesday, October 12. What is most likely ex-dividend date for this dividend?

Monday, Septemeber 26 - The ex-date for a corporate dividend is typically one business day prior to the record date.

Rule 144 covers all of the following transactions except A. trades on an affiliate in the over-the-counter market B. trades by an affiliate on an exchange C. trades of a newly issued nonregistered security D. non-affiliate trades on an exchange

Non-affiliate trades on an exchange

All of the following are valid terms describing stock splits except a. odd split b. uneven split c. even split d. reverse split

Odd split

Which of these is an equity security?

Preferred stock

Which of these is an equity security? A. Preferred stock B. Mortgage bons C. Debentures D. Municipal bonds

Preferred stock

Each of the following activities would be deemed by market regulators to be manipulative behavior except A. Proxy solicitation B. Marking the open or the close C. Front running D. Capping

Proxy solicitation

An investor has just received stock rights in the mail allowing the purchase of 250 shares of a stock offering at a discount. With these rights, the investor may take any of the following actions except A. purchase 125 shares at double the discount B. Sell the rights for a portion of their value C. Exercise some rights and sell the rest D. Sell some rights and let the rest expire unexercised

Purchase 125 shares at double the discount

Callable preferred stock is advantageous to the issuing company because it allows the company to

Replace a higher, fixed-rate issue with a lower issue after the call date

Securities acquired through some means other than a registered public offering are known as

Restricted

In a stock rights offering, which of the following statements is true?

Rights are issued to existing shareholders on a basis of one right for one existing share

Regarding transferability for common shares, which of the following is true?

Shares can be sold or given away without permission

Grace Olson owns 100 shares of XYZ stock at $50 per share when the company declared a 2:1 split. Which of the following is true?

She now has more shares at a lower cost basis

An investor purchased 100 shares of MJS on June 19, 2015, at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct?

The adjusted cost basis of the shares is $30 There is a long-term capital gain on all of the shares sold

Your customer purchased 100 Foreign Motors, Limited, American depositary receipts (ADRs). The ADRs represent 100 shares of Foreign Motors, Limited, a London-based company. What is regular way settlement for this trade?

Two business days following the trade date

American Depository Receipts (ADRs) for a French corporation would be denominated in which of the following currencies?

U.S. dollars - purpose of these instruments is to trade in the U.S. markets

For securities held in street name, which of the following is true?

The customer is the beneficial owner

ABC Corporation cumulative preferred stock would pay dividends in what order?

The in arrears dividends, current preferred dividends, then common dividends

Jones bought an American depository receipt (ADR) in a South Korean company at $22.00 and recently sold the shares for $36.88. What are the tax consequences of this transaction?

The profit is taxed as a capital gain of $14.88 in the United States

To receive a dividend, the owner's name must appear in the transfer agent's books by

The record date

Nolan McCann owned 100 shares of LMN at $10 per share when the board of directors declared a 1:4 split. What will happen to the share price and the number of shares?

The share price will go up to $40, and he will own 25 shares

Which of the following is a true statement about warrants?

The warrant allows the holder to exercise to purchase the underlying stock at a price higher than the market price at the time of the warrant's issue

BigCo seperates a division (KNDA Big Company) and issues stock for the new division to holders of BigCo stock. What are the tax consequences of this corporate spinoff?

There is no taxable consequence because is spinoff is not a taxable event.

On October 15 of last year, ABC company declared a 3 for 1 reverse split. What are the tax consequences for this corporate action?

There is none

What is the primary purpose of an issuer sponsoring an American depositary receipt (ADR)?

These securities are created to attract a U.S. Investor base

A shareholder feels strongly about some of the issues to be voted on at the next shareholder meeting but is unable to attend. Which of the following is true?

They can vote by proxy

From time to time, a corporation may purchase its own issued shares. These shares are then held by the corporation, but they may not vote, do not recieve dividends, and are not used in most calculations of value and profitability. What are these shares called?

Treasury shares

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, September 13. The dividend will be paid to holders of record of BigBox common stock as of Tuesday, September 27 and will be delivered to shareholders on Wednesday, October 12. What is the declaration date for this dividend?

Tuesday, September 13

Regarding stock rights and stock warrants, which of the following is true?

Warrants are sometimes bundled with other securities & Rights are exercised to purchase shares at a discount

BigBox Stores, Inc., declared a $1 per share dividend on Tuesday, September 13. The dividend will be paid to holders of record of BigBox common stock as of Tuesday, September 27, and will be paid Wednesday, October 12. What is the payable date for this dividend?

Wednesday, October 12

BigBox Stores, Inc., declared a $0.50 per share dividend on Wednesday, September 13. The dividend will be paid to holders of record of BigBox common stock as of Wednesday, September 27 and will be delivered to shareholders on Wednesday, October 4. What is the declaration date for this dividend?

Wednesday, September 13

A customer owns 1,000 shares of stock subject to a 1:3 reverse stock split. The position will now consist of

fewer shares worth more per share with the same net position value

A customer owns 1,000 shares of stock subject to a 2:3 reverse stock split. The position will now consist of

fewer shares worth more per share with the same net position value

Regarding preferred stock, all of the following are true except A) preferred shareholders have no preemptive rights that precede the preemptive rights of common shareholders. B) preferred shareholders are paid before common shareholders in the event of a corporate bankruptcy. C) the right to vote on corporate issues is not available for preferred shareholders. D) a corporation issuing common shares must issue at least one class of preferred shares.

a corporation issuing common shares must issue at least one class of preferred shares.

While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be

adjustable rate

The conversion feature for preferred shares has fixed items...

allowing the owner to convert the shares (exchange them) for a specified number of the same issuers common shares

Proxy voting

allows the shareholder to vote his shares without attending the annual meeting

A penny stock is best described as

an unlisted stock valued at less than $5 per share.

An affiliate has held restricted shares fully paid for six months. In anticipation of the desire to divest the shares, the affiliate should know that

any shares sold will be subject to volume restrictions if still an affiliate

Straight preferred shares

are noncumulative and have no provision for paying missed dividends later

Preferred shares, like debt securities,

are sensitive to and have an inverse relationship to interest rates

Snowflake Resorts, Inc., has announced their intention to repurchase 5 million of the companies outstand shares from the secondary markets. This is called a

buy back

Common shareholders wanting to vote on issues at a shareholder meeting can do so in all of the following ways except A) in person. B) by proxy delivered online. C) by telephone or text message. D) by proxy delivered by mail.

by telephone or text message.

A company's board of directors (BOD) approves a dividend payment. When this occurs it is recognized as the

declaration date

Common dividends may be

declared, increased, reduced, or suspended by the board of directors

An American Depository Receipt (ADR) is a

domestic security representing a foreign security in U.S. markets

Regarding investment products, which of the following is true?

equity securities represent ownership in an issuing company

Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to

file Form 144 because he is a control person

A convertible feature for preferred shares allows the owner to exchange the shares

for a fixed number of shares of the issuing corporation's common stock

An existing shareholder receives 1,000 stock rights from the issuer, allowing the holder to do all of the following except A) hold the rights indefinitely for future use. B) exercise the rights to purchase more shares. C) allow the rights to expire unexercised or unsold. D) sell the rights and profit from any increased market value.

hold the rights indefinitely for future use.

Which of the following corporate actions would not require the company to formally announce the action?

interest on the issuer's bonds

Participating stock offers

its owners the possibility of receiving a share of corporate profits that remain after all dividends and interest due other securities are paid

Common shareholders have the right to

limited access to a company's books and records

Someone who purchases shares of a corporation's common stock has

limited liability and voting rights

A preferred stock dividend is stated as a percentage of

par value

A shareholder owns preferred shares that allow for the possibility of receiving more than the stated dividend. This type of preferred share would be known as

participating

Included under the term, equity security, would be

participating preferred

Which of the following is not considered a financial benefit for owning common stock? A) The potential for capital growth B) The potential for income C) Price stability D) Limited liability

price stability

Callable preferred stock is advantageous to the issuing company because it allows the company to

replace a higher, fixed-rate issued with a lower issue after the call date

Which of the following corporate actions are designed to allow investors to buy shares of stock under specific, defined conditions?

rights offering and issuing warrants

Restricted securities may not be sold until they have been held fully paid for

six months

Equity is to debt as

stock is to bond.

A company offers to repurchase outstanding debt securities it has issued directly from its bondholders for cash in what would commonly be known as

tender offer

Rule 144A mandates

that restricted shares held by an affiliate are subject to a six-month holding period and will be subject to volume restrictions (limits) for as long as the individual continues as an affiliate of the corporation

All of these dates are declared by the board of directors of a corporation except the These are: the record date the payable date the declaration date

the ex-dividend date

An investor owns 300 shares of a Silicon Valley high tech firm whose shares are quoted on the Nasdaq Stock Market. A month prior to the company's annual meeting, the broker-dealer holding the stock in street name forwarded the voting proxy to the client. As it happens, the investor had to be at a business meeting in San Francisco that ended the day before the annual meeting. If the investor took advantage of the proximity to attend the meeting

the voting proxy would be revoked and only the vote at the meeting would count

Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of the following are true about the position except A. they will receive dividends in U.S. dollars. B. the security may be traded in U.S. markets. C. they have the same voting rights as an owner of the common stock. D. they have the right to request the underlying common shares be issued to them directly.

they have the same voting rights as an owner of the common stock

Interest-rate sensitivity for preferred shareholders should be understood to mean that

when interest rates rise, the prices for preferred shares can fall