Equities KM
Authorized stock is best described as common shares that
A corporation is permitted to sell to the public
Who is allowed to buy stock rights during the ex-rights period? A) Only holders of warrants B) Any interested investor C) Only preferred shareholders D) Only shareholders of record
Any investor The ex-rights period begins on the ex-rights date and continues until the rights expire, usually several weeks later. During this period, the rights are detached from the stock and trade separately, under their own symbol. Anyone can buy them.
Issuers are required to provide to FINRA notice of stock splits and stock dividends
Issuers are required to provide notice of a dividend distribution, stock split or stock dividend no fewer than 10 days before the record date.
XYZ Co. has engaged in a 4:1 stock split. As a result, holders of XYZ shares will now have A) More shares with a lower per share value B) Fractional shares with a pro-rated value per value C) The same number of shares at the same per share value D) Fewer shares with a greater per share value
More shares with a lower per share value
On Monday, January 2nd, ABC Inc. declares a $0.10 dividend payable on Monday, Jan 16 to all shareholders of record as of Thursday, Jan 12. When will be the ex-dividend date for cash settled trades in the security? A)Friday, Jan 13 B)Wednesday, Jan 11 C)Tuesday, Jan 10 D)Thursday, Jan 12
Friday Jan 13 Cash settled trades settle on the same day. Therefore, an investor could buy stock on the record date and still settle in time to receive the dividend. Therefore, the ex-dividend date for a cash settled trade will be the business day after the record date.
On Monday, January 2nd, ABC Inc. declares a $0.10 dividend payable on Monday, Jan 16 to all shareholders of record as of Thursday, Jan 12. When will be the ex-dividend date for cash settled trades in the security? A) Thursday, Jan 12 B) Wednesday, Jan 11 C) Friday, Jan 13 D) Tuesday, Jan 10
Friday Jan 13 Ex-date is record date plus one for cash
ABC stock is traded on the New York Stock Exchange. If a dividend is declared by the ABC Board of Directors, the NYSE must be notified no later than
The exchange must be notified 10 business days before the record date when a dividend is to be paid.
When must proxy materials be filed with the SEC? A) In advance of the shareholder solicitation B) Within five days after the shareholder vote C) Within ten days of posting proxy materials online D) There is no requirement to file proxy materials
The information contained in proxy materials must be filed with the SEC in advance of the shareholder solicitation, and it must disclose all important facts upon which shareholders are asked to vote.
XYZ Inc. declares a $0.45 dividend payable on Monday, July 14, to all shareholders of record as of Monday, July 7. When is the ex-dividend date for a regular way trade in the stock? A) Wednesday, July 2 B) Thursday, July 3 C) Friday, July 4 D) Tuesday, July 1
Thursday July 3rd bc July 4th is national holiday
An investor holds 10 warrants in XYZ Company. The company's common stock currently sells for $30.00 per share. What are the warrants worth? A)It depends on the warrants' exercise price. B)$300 C)$3,000 D)$30,000
Warrants have value only if the stock appreciates over time to a level above the warrant's exercise price. Profit then is approximately the stock price less the exercise price. In this example, if the exercise price is $30.00 or above, the warrants may have little value. However, any appreciation above the exercise price can generate profit.
A customer buys 100 shares of XYZ for $20. XYZ declares a 2:1 split. The customer later sells their shares at $22. The customer has: A) $200 gain. B) $400 gain. C) $2,000 gain. D) $2,400 gain.
$2,400 The customer originally bought 100 shares at $20 for a cost basis of $2,000. After the split, the customer will own 200 shares at $10. They are selling the 200 shares at $22 per, or $4,400 proceeds. The gain would be proceeds of $4,400 minus cost basis of $2,000 = $2,400.
Short Sale
A short sale is the sale of a security that the seller does not currently own. It is regarded as an investment strategy for investors who believe the value of the security will fall.
On Tuesday, an investor buys stock in a cash-settled transaction. The trade will settle on
Although most trades settle regular way (T+2), cash-settled trades settle on the same day as the trade date.
A share in a foreign corporation that underlies an ADR is known as a(n) A) GDS B) ADP C) ADS D) GDR
American Depository Share
According to SEC rules, an issuer must give advance notice of a dividend distribution to the exchange where the security trades. They must give notice ____ days prior to the _____ date
An issuer is required to give advance notice of a dividend distribution 10 business days prior to the record date. This notice is required for all such distributions, including stock dividends, stock splits, reverse stock splits and rights or other subscription offerings.
An issuer will send proxy statements directly to the beneficial owner of the securities when they are held in all of the following forms EXCEPT A) Registered physical certificates B) Street name C) DWAC D) DRS
Answer: Street Name When securities are held in street name the broker-dealer is the nominal, or named, owner, and the issuer sends proxy statements and all other information about the securities to the firm, which must then distribute the information to the customer, who is the beneficial owner. DRS, DWAC and registered physical securities all list the customer as the named owner, so the issuer can communicate with the customers directly.
What usually happens to the price of a stock at the opening of trading on the ex-dividend date?
At the opening of trading on the ex-dividend date, stock trades are made ex-dividend, meaning buyers are no longer entitled to dividends. The stock price normally declines by the amount of the dividend, since it was included in the price of the stock before the ex-dividend date but not after.
Nigel owns stock certificates that he inherited from his grandfather. How can he continue to hold the stock without having responsibility for lost or damaged certificates? A) Register the certificates with the Secretary of State B) Endorse the certificates to a brokerage firm C) Convert the certificates to registered form D) Sell the certificates to a trust
Endorsing stock certificates to a brokerage firm transfers ownership into street name. The brokerage firm maintains a record of ownership, and the investor may sell the stock without the need to deliver a paper certificate.
ABC corporation will elect 2 members of the Board of Directors at its annual meeting. A shareholder that owns 200 shares of stock may
I. Vote 200 shares of stock for each director under statutory voting IV. Split a total of 400 votes any way between the two directors under cumulative voting
A security that can be freely transferred, assigned or delivered to another entity is called A) Fungible B) Marketable C) Negotiable D) Viable
Negotiable A negotiable security is one that can be freely transferred, assigned or delivered to another entity. Listed equities are negotiable when they are traded or assigned by an authorized owner, unless they are encumbered as debt or collateral.
Which of the statements below correctly describe the par value of common stock? I. Par value and market value are rarely equal II. Par value and market value are typically equal III. Par value of common stock is typically $1 or less IV. Par value of common stock is typically $100
Par value is assigned to common stock when it is issued. It is typically $1 or less for common stock, and is simply an accounting value that is not related to the market value of the stock.
When issuers include warrants in bond offerings, the issuer I. typically pays a lower interest rate on the bonds II. typically pays a higher interest rate on the bonds III.has made the bond more marketable IV. has made the bond less marketable A) I and III B) I and IV C) II and III D) II and IV Answer Explanation
Pay lower interest and made more mktable When warrants are added as sweeteners to a bond offering, the issuer is able to attract greater investor interest. The bond is more marketable and the issuer can sell it with a lower interest rate.
If an investor is holding callable preferred stock, she should be
Prepared to sell her shares back to the company
When comparing rights and warrants, which of the following statements are TRUE? I. Rights are longer term than warrants II. Warrants are longer term than rights III. At issue, the exercise price of a right is lower than the market price of the underlying stock IV. At issue, the exercise price of a warrant is lower than the market price of the underlying stock A) II and IV B) I and IV C) I and III D) II and III
Rights are short term instruments that allow the holder to buy the stock at a price that is typically lower than the current market price of the stock. Warrants are long-term instruments. The exercise price of the stock is typically higher than the market price of the stock at the time the warrants are issued. Warrants have value only if the price of the stock appreciates.
A company has issued 8% preferred stock with a par value of $30 per share. The preferred stock currently is selling for $40 per share. The annual dividend paid to holders of the preferred shares will be
The annual dividend in preferred stock is expressed as a percentage of par value. "8% preferred stock" would pay 8% of par value annually. 8% x $30 = $2.40 per year.
A company "reverse splits" its stock on a 1-for-10 basis. If an investor holds 800 shares before the event, what will be the impact of the split, if any, on the total value of the investors' shares? A) Total value will decline by 90% B) Total value will not change C) Total value will decline by 10% D) Total value will increase by 10 times
Total value will not change
On Tuesday, an investor buys stock in a cash-settled transaction. The trade will settle on
Tuesday
The shares of an appliance manufacturer would be considered a ________ stock
a cyclical stock.
Participating preferred stock
allows the holder to receive an additional dividend distribution, usually contingent on the occurrence of a specific event, such as a particular level of common stock dividend.
Corporations must provide auditel statements to outstanding shareholders
annually
No-par value stock is
simply shares that have not been assigned a par value by the corporation. Some states permit this to occur.
The standard default registration method for most securities today is
street name
All dividends are declared by
the board of directors.
The sale of an asset at a price higher than its purchase price is
capital gain
For cash transactions,
confirmation and settlement occur on the trade day (T) - i.e., "same-day settlement."
Brunswick issues a Series A $2.40 cumulative convertible preferred voting stock. This stock I. is convertible into common stock II. pays dividends in arrears III. receives excess dividends on a pro rata basis with common stock A) I, II and III B) I only C) I and II only D) I and III only
convertible into common stock Cumualitve - missed dividends need to be paid (all dividends in arrears from cumulative stock must be paid before any dividends are paid on the common stock.) ----- (The third is participating stock)
Interest rate risk is typically more common with
debt instruments
Common stock is most often purchased to satisfy which of the following investment objectives? A) Income B) Principal protection C) Growth D) Tax Minimization
growth
To earn a profit on a short sale position, the short sale transaction price must be A) lower than the option premium earned. B) lower than the buy-to-cover price. C) higher than the buy-to-cover price. D) higher than the option premium earned.
higher than the buy-to-cover price.
Adjustable -rate preferred stock pays dividends that are determined based
on an underlying benchmark, typically the US Treasury bil
A common shareholder often casts votes by proxy,
or through a third party that is representing the shareholder's votes.
When compared to ownership rights of common stock, owners of preferred stock generally A) are junior in claim to assets of a corporation in bankruptcy B) are guaranteed to receive dividend payments regularly C) are able to vote on more corporate issues D) receive higher dividends
receive higher dividends
In order to receive a dividend, a shareholder must own stock as of the
record date
The registrar maintains
records of ownership of securities by matching each share of stock against the company's ownership record. A transfer agent records changes of ownership in securities. Often the transfer agent and the registrar are the same entity. The registrar maintains records of ownership by matching each share of stock against an ownership record. The registrar also makes sure there is no unauthorized stock issuance.
Public corporations must make sure that their stock ownership records are accurate by matching each share of stock with an owner. This task is performed by
registrar
Conversion rights refer to
the preferred shareholders' right to convert their preferred stock into common stock at any time. The amount of shares to be converted is determined as the issue price of the preferred divided by the conversion price. Liquidation preference refers to the amount of money per share that a preferred shareholder will receive prior to any distribution to common shareholders in the event of a liquidation of the company. This amount is typically determined as a multiple of the issue price of the preferred. Antidilution provisions refer to provisions in preferred stock that protect the holder against transactions such as stock splits, dividends, and other dilutive transaction the issuer may undertake. Redemption rights refer to the preferred holders' right to force the issuer to buyback the issue at some point in the future. Preferred holders will typically exercise their rights if the company doesn't perform well, doesn't go public, or engages in a change of control transaction.
The entity responsible for ensuring that investors receive the appropriate number of shares in a stock split is
transfer agent
)DRS. B)bearer form. C)registered physical certificates.
what are each of these
