Unit 1

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

$2.40

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 how much?

$4

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

$5

A common stockholder's voting rights apply to which of the following? 1. Election of the board of directors (BOD) 2. Declaration of dividends 3. Authorization or issue of more common shares 4. Changing suppliers for raw material or parts used in production

1 and 3

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? 1. She must file Form 144 to sell the shares. 2. She does not have to file Form 144 to sell the shares. 3. She is considered an affiliated person. 4. She is not considered an affiliated person.

1 and 3

Common stockholders of a publicly traded corporation have which of the following rights and privileges? 1. Residual claim to assets at dissolution 2. Right to a vote for stock dividends to be paid 3. Right to receive an audited financial report on an annual basis 4. Claim against dividends in default

1 and 3

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

An affiliate holding unregistered shares can sell under Rule 144

4 times a year

A nonaffiliated owns 3% of an issuer's common stock. This person will be considered a control person if a spouse owns

8%

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?

A disclosure statement is required, but not a suitability statement.

Which of the following securities provides U.S. investors with a way to gain exposure to the common stock of a foreign issuer?

ADR

Mr. Smith purchases 2% of MES Corporation's common stock. Four years later Mrs. Smith purchases 9% for her own account. Which of the following is true?

Both Mr. and Mrs. Smith are considered control persons.

All else being equal, which of the following preferred would pay the highest dividend?

Callable

An investor would expect which type of preferred stock to pay the highest stated dividend rate?

Callable

Which preferred stocks allows the issuer to pay the shareholders par and cease dividend payments following a stated period?

Callable The issuer can pay off callable preferred at any time after the call protection period, and dividends will cease.

Which of the following features of preferred stock allows the holder to reduce the risk of inflation?

Convertible Fixed-dollar investments, such as bonds and preferred stock, are subject to inflation risk, which is the risk that the fixed interest or dividend payments will be worth less over time in terms of purchasing power. The ability to convert to common stock, which tends to keep pace with inflation, offsets this risk.

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

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

A common stock shareholder's residual right to corporate assets refers to which of the following?

During the dissolution of corporate assets, common shareholders will be paid if there are any funds left after debtholders and preferred shareholders are paid.

Regarding investment products, which of the following is true?

Equity securities represent ownership in an issuing company.

Which of the following is an example of an equity security?

Preferred share

Which statement describes rights and warrants?

Rights are short term; warrants are long term.

By electing a board of directors (BOD), stockholders have

a say in the company's management but are not involved in the day-to-day details of its operations.

Past-due dividends on cumulative preferred shares

accumulate on the company's books until paid.

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.

A preferred shareholder's priority claim on assets is the preferred shareholder's priority standing over

common shareholders

Voting rights are a privilege generally afforded to

common shareholders only.

Before effecting an initial penny stock transaction for a new customer, the registered representative must do all of the following except

confirm that a margin account has been established.

Preferred shareholders who expect missed dividend payments to be eventually paid are most likely to own

cumulative preferred stock. Cumulative preferred stock accrues payments due its shareholders that have been missed in the event dividends are reduced or suspended.

Common dividends may be

declared, increased, reduced, or suspended by the board of directors (BOD).

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

As interest rates rise, prices of preferred stock will

fall

The primary purpose of American depositary receipts (ADRs) is to facilitate the trading of

foreign stocks in U.S. markets.

Because common stock can be sold or given away, it is considered to be

freely transferable

An officer of a public company buys 1,000 shares of the company's registered stock in the open market. Regarding the sale of these shares, the officer may sell

immediately, subject to Rule 144 volume limitations.

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

limited liability and voting rights.

When a company wants to issue additional shares of stock, the preemptive right given to existing shareholders allows those shareholders to

maintain their proportionate ownership in the corporation.

A customer investing in common equity securities could realize all of the following except...

protection of principal investment.

The potential that inflation will devalue the fixed dividend income payments received by preferred shareholders is known as

purchasing power risk

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.

Rule 144 stipulates that after holding restricted stock fully paid for six months, an affiliate may begin selling shares

subject to volume restrictions within any 90-day period.

For those owning preferred classes of stocks, priority of asset dissolution refers to

the order in which preferred shareholders are paid in the event of a bankruptcy liquidation.

A preemptive right for existing shareholders is best described as

the right to purchase shares in an amount that would keep a shareholder's proportionate ownership in the corporation unchanged when a company issues additional shares.

If a preferred shareholder received a $3.50 annual dividend each year, it could be assumed that

this is a 3.5% preferred class.