Equity security (quiz)
A round lot unit of trading in common stock is
100 shares
With regard to common stock, prior stockholders vote is required for which of the following?
A 3 for 1 stock split Outstanding common shareholders must vote to approve stock splits
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 cumulative feature With cumulative feature, any dividends that have not yet been paid for a given quarter or multiple quarters must be paid to the holder of cumulative preferred stock prior to the company paying dividends on common stock.
Which of the following portfolios is entirely comprised of "ownership" positions?
A mixture of common stock and preferred stock "Ownership" of a company is expressed as equity in the company. Common and preferred stock are both forms of equity ownership in a company
A warrant that is issued with a debenture
Allows the holder a long-term ability to exercise and buy a specific number of shares of common stock A warrant is a long-term derivative security that allows the holder the ability to buy a specific number of shares at a specific price.
In terms of common stock and the securities industry, which of the following BEST describes the term "proxy"?
An authorization related to voting privileges allowing absentee voting for shareholders or voting on behalf of shareholders by a broker-dealer firm
A corporate stockholder has a "residual claim". This refers to the stockholders right to:
Any dividends the corporation has not paid in the past A "residual claim" means that the stockholder has a claim on any assets remaining after the satisfaction of the creditors of the corporation that is in bankruptcy.
Which of the following securities represents ownership in a corporation?
Callable preferred stocks Preferred stock represents ownership (equity) in a company. This is true for all types of preferred stock including callable preferred stock.
Which of the following is NOT a characteristic of treasury stock?
Considered authorized, issued, and outstanding stock
Risks or disadvantages that may arise from participation as limited partner in a limited partnership generally include all of the following EXCEPT:
Full participation in all liabilities incurred by the general partner(s) Limited partnerships are illiquid investments that have come under close scrutiny from the IRS because of abuse of the tax-shelter advantage. Limited partners are only subject to limited liability, which differs from full participation in all liabilities incurred by the general partner(s). Only general partners are subject to unlimited liability.
Equity Real Estate Investment Trusts will usually invest in which of the following?
Income producing properties
A corporation increases the dividend payments to common stockholders. Assume that the price of the common remains unchanged. How does this affect the dividend yield of the stock?
Increases Because the dividend has increased and the market value of the stock has stayed the same, the yield would increase. The formula for current yield is: Annual Dividend/Market Price = Current Yield
Which of the following factors tends to affect the price of utility common stocks more that industrial common stocks?
Interest rates Utility stocks are very strongly ties to interest rates since they are so highly leverages (carry a lot of debt).
Which of the following is true regarding a limited partner who has invested in a limited partnership tax shelter?
Limited Partners have limited liability and possible tax write offs against other passive income for the limited partner. Limited partners must be "silent" partners and would NOT have control over the types of investments made by the partnership. Limited partners DO NOT have control over the management of the partnership.
Which of the following investment choices would provide an investor the least liquidity?
Limited partnership participation Since there is no active secondary market on limited partnerships, they would offer the investors the least liquidity.
Which of the following is typically considered a unit of trading when dealing in common stock?
Lots of 100 shares
All of Theo following companies are examples of non-cyclical or defensive stocks except:
Manufacturers of appliances Cyclical stock tends to rise quickly when the economy turns up and to fall quickly when the economy turns down. Housing and appliance manufacturers are examples of cyclical stocks
Customer A owns a common stock that offers cumulative voting, while customer B owns a common stock that offers statutory voting. Which of the following statements would be TRUE regarding the voting rights of customer A and B?
Minority stockholders of Customer A's company have a better chance of electing a director of their choice than the minority stockholders of customer B's company. Cumulative voting gives minority shareholders a better chance of electing directors that they prefer.
Of the following assets, which are most likely to be included in the investment portfolio of a real estate investment trusts:
New apartment houses and shopping centers Shareholders in an REIT look for income from rents received from apartment buildings and shopping centers as well as capital gains as buildings are sold at profit.
Investing in a direct participation program would provide investors with a portfolio of:
Non-correlated assets which are expected to provide regular returns DPPs are considered "Alternative Investments" of "Non-Correlated Assets" and are expected to provide regular or steady returns to the investor
A common stockholder in a corporate liquidation has a
Residual claim on the assets Common stockholders have a residual claim on the assets. If liquidation occurs, common stockholders would be the last to be paid.
Which of the following risks isNOT normally a major factor when analyzing ADRs (American Depositary Receipts)?
Risks associated with the call of such securities by the issuers ADRs are not usually issued in callable form, so the risk of call by the issuer would NOT normally be a major factor when analyzing ADRs
All of the following are defensive stocks EXCEPT:
Steel company Defensive stock means the company is theoretically not subject to normal business cycles (steel tends to be bought at the same rate regardless of the economy)
Which of the following describes Regular-way settlement for common stock transactions?
T+2 For common stock, regular way settlement is the 2nd business day after the trade date (T+2)
Which of the following is incorrect regarding super voting shares?
They are considered preferred stockholders Super voting stock permits a limited number of stockholders to retain control of the company
Which of the following statements regarding REITs is incorrect?
They are recognized as limited partnerships
Which of the following statements concerning real estate investment trusts is correct?
They must be registered with the SEC before a public sale.
ABC company declared a fifty cent per share dividend on August 15th to shareholders of record Friday, September 15th. On which two of the following days can an ABC company stockholder sell his shares and still receive fifty cent per share dividend?
Thursday September 14th for regular way settlement and Monday September 18th for cash settlement Ex-date for regular way settlement is 1 business day prior to record date (Sep. 14th) Ex-date for cash settlement is the business day after records (Sept. 18th) You MUST Buy before the ex-date or sell on or after the ex-date to receive the dividend.
All of the following are rights of common stockholders EXCEPT:
To vote for the amount of stock dividends they will receive Common stockholders are NOT allowed to vote for their own dividend distributions. Dividend distributions are determined by the Board of Directors of the corporation.
Common stockholders can take which of the following actions with regard to the corporations business activities?
Vote on a stock split
Which of the following provides a long-term opportunity to purchase a certain number of common shares at a specific price?
Warrants Warrants are good for years (in regards to the long-term opportunity)
A corporations stock that has been issued and later repurchased by the corporation:
Will be considered as "issued" and "treasury" shares A corporations stock that has been issues and later repurchased by the corporation is called "Treasury" stock.
If Ida has a significant portion of her portfolio invested in equity REITs, her portfolio would be most detrimentally affected by
an increase in interest rates as well as a significant increase in the number of available buildings in the are in which her REIT houls properties REITs are impacted by factors that negatively affect the overall real estate market. A significant increase in the amount of available properties has a negative affect on the market, driving prices and rental income down. Increases in interest rated also have a negative affect, because the increase will cause borrowing to become more expensive driving=g property value down.
Cash dividends paid to investors:
are subject to Federal, State, and Local tax (normally taxed at the rate of 15%)
A Preemptive Rights clause in a corporate charter includes all of the following characteristics except:
requiring the corporation to repurchase shares from existing shareholders at predetermined intervals A preemptive rights clause allows existing shareholders first choice on Newley issued shares and protects the existing shareholders from dilution.
Which of the following would probably be most leveraged?
A utility company Utility companies are usually highly leveraged. They can do this safely because they supply a commodity everyone will always need. They are not constrained by a diminishing of volatile market.
An investor in a limited partnership makes a $20,000 cash capital contribution and signs a $50,000 recourse note. The investors basis is:
$70,000 and the maximum loss potential is $70,000 Basis for a limited partnership is adjusted for an investors assumption of partnership liabilities. In this case, the investor contributes $20,000 and assumes liability for the $50,000 recourse note, so the investors basis is $70,000.
Leafy Trees Inc. has the following facts regarding its common shares as of April: Authorized Shares: 10,000,000 Issued and Outstanding: 8,000,000 May: It repurchases 1,000,000 shares. June: It completes a 2 for 1 stock split. How many shares are outstanding after the split?
14,000,000 The company has 8,000,000 shares outstanding before any corporate action is effected. It then repurchases, 1,000,000 shares, which is now treasury stock. The outstanding number of shares is reduced to 7,000,000. (Issued stock-treasury stock=outstanding stock) 8,000,000-1,000,000=7,000,000 After this, the company completes a 2 for 1 stock split. So the new outstanding share figure is: 2/1 x 7,000,000 = 14,000,000
Reg T settlement of common stock is trade date plus
4 business days Regulation T settlement on common stock is trade date plus 4 business days. Regular way settlement date is T+2. Cash settlement is same day.
What is the current yield for a preferred stock which has a par value of $100 and a current market price of $95 with an annual dividend payment of %5?
5.26% The question states the annual dividend amount, which is $5.00, and the current market value, which is $95. To calculate the current yield: annual dividend/current market value 5/95=5.26%
Which of the following securities have over time best kept up with inflation?
common stock
ABC Corporation has 2,000,000 shares of common stock outstanding and decides to issue 500,000 new shares in order to raise capital. The Corporate Charter includes a Preemptive Rights Clause. Assuming that ABC Corporation also has 10,000,000 shares of common stock authorized and 1,000,000 treasury shares, which of the following statements is correct?
An investor that owns 200 shares could subscribe to 50 shares of the new issue. We know we have rights offering because it says, "the corporate charter included a preemptive rights clause." If you take the 2million outstanding shares divided by the 500,000new shares, you determine that this is a 4:1 Rights Offering Ratio. Therefore,, if you have 200 shares, you have 200 rights. Take the the number of shares/rights and divide it by the ratio. 200/4=50. Therefore, if you have 200 shares of stock, you will be able to subscribe to 50 additional shares of the new issue.
Which of the following is true of cumulative preferred stock?
Past dividends must be paid before common stockholders are paid a dividend Preferred stockholders are always paid before common stockholders.
Which of the following is NOT a benefit of owning preferred stock rather that common stock?
Preferred shareholders have preemptive rights ahead of common shareholders Preemptive rights are rights given to common shareholders ONLY. NOT preferred stockholders
Which of the following statements about preferred stock is true?
Preferred stock is considered an equity security
Preferred stock has which of the following traits?
Preferred stockholders have a priority claim to the assets of a corporation over common shareholders in the event of dissolution of the company.
Mortgage Real Estate Investment Trusts generally invest in which of the following?
Properties handled by developers or builders
All of the following are rights of a common stockholder except?
Receiving fixed cash dividend Common stockholders have the right to receive dividends once the Board of Directors declares a dividend, but dividends are not a right until declared and are NOT fixed.
An investor that has received rights through a Pre-emotive Rights Offering could fo all of the following with the rights EXCEPT:
Redeem the rights for their cash value Rights may be exercised, sold, or allowed to expire but may not be redeemed for cash.
In relation to limited partnerships, the 'flow-through principal" refers to:
The flow-through of partnership income and expenses to its members so that they can be reported on the members individual tax returns The "Flow-through principal" refers to the flow of profits and losses from the partnership to the investor. This is what made limited partnerships attractive tax shelter investments prior to change in the legislation.
Which of the following happens when a company declares a stock split?
The proportionate share of ownership[ in the company by each stockholder does not change. Since a stock split affects only the existing shareholders, the proportionate ownership of each shareholder would not change
Common stockholders have all of the following rights EXCEPT:
The right to vote for the senior management of the company Officers and senior management are selected by the Board of Directors not the stockholders.
When the owner of common stock receives Proxy Material, which of the following do they then have?
The right to vote their shares in the voting matter presented at the shareholders meeting Proxy Material is like an absentee vote and allows shareholders to vote their choice when the shareholder is unable to attend the shareholders meeting
Which one of the following is true regarding a stock split?
The stockholder's percentage ownership remains unchanged. Since a stock split affects all existing shareholders equally, each investors percentage ownership would not be changed by the split
REITs can pass through all of the following to investors except:
capital losses Since REITs trace like a corporate security, there is no pass through of losses; losses are treated as capital losses.
Corporations usually issue warrants in connection with which of the following types of new issues:
debentures, to secure a lower interest rate Corporations usually issue warrants in connection with the issuance of debentures in order to make the new issue more attractive to investors
Each of the following can be passed through to an investor who has purchased REIT shares EXCEPT:
losses incurred on a sale
If a preferred stock is cumulative it means that the stock:
must pay all dividends in arrears prior to the payment of dividends on common stock
All of the following comments would NOT apply to holders of preferred stock except:
preferred shareholders typically see lower levels of price volatility than common shareholders Preferred stock normally does not experience as much volatility as common stock, due to their fixed dividend rate.