unit 3 equity securities

Which of the following securities typically carries the highest dividend rate? A) Straight preferred B) Callable preferred C) Participating preferred D) Convertible preferred

Callable preferred - Callable preferred allows the issuer to call the securities away from the investor. From an investor's point of view, this is not an incentive. Therefore, callable preferred tends to pay higher rates.

Which of the following features of preferred stock allows the holder to reduce the risk of inflation? A) Callable B) Convertible C) Noncumulative D) Cumulative

Convertible

The 5% markup policy would apply to all of the following equity transactions except A) an agency trade done on an exchange. B) a riskless principal transaction. C) a proceeds transaction. D) a primary market transaction.

D) a primary market transaction. - secondary market transactions in nonexempt securities

Which of the following statements is true regarding dividend payments on common stock?

Dividends on common stock are paid at the discretion of the board of directors and may be paid even where there are no earnings. - Although each stockholder receives an amount proportionate to their holdings, the dividend can be any proportion of the company's earnings.

Which of the following is true regarding a 5-for-4 stock split? A) The par value will be unchanged. B) Retained earnings will be increased. C) The net worth of the company will be reduced. D) Each shareholder's proportionate equity will be unchanged.

Each shareholder's proportionate equity will be unchanged.

Which of the following terms are associated with over-the-counter (OTC) trading? Market maker Specialist Auction market Negotiated market

Market maker Negotiated market

Over-the-counter (OTC) trading practices in corporate securities are supervised by

SEC and FINRA

If a customer has $9,000 of capital losses and $2,000 of capital gains in a tax year, that year's consequences are

a $3,000 loss deduction with $4,000 carryforward.

The issuer of an American depositary receipt (ADR) is

a domestic bank

All of the following corporate transactions are nontaxable to investors when received except A) reverse stock splits. B) stock dividends. C) cash dividends. D) stock splits.

cash dividends. - taxable event

The 5% policy applies to

commissions charged when executing customer agency (broker) transactions. riskless and simultaneous transactions. markups on stock sold from inventory. markdowns on stocks bought for inventory.

The over-the-counter (OTC) market could be characterized as what type of market

dealer

If a customer buys $28,000 of ABC stock in April 20XXand at year end, the stock is worth $23,000, how much may the customer deduct on his 20XX tax return?

$0 Until the customer realizes the loss by selling, there is no tax deduction.

A 2-for-1 split does which of the following? Increases the number of outstanding shares Decreases the number of outstanding shares Decreases par value per share Decreases retained earnings

- Increases the number of outstanding shares - Decreases par value per share

Characteristics common to penny stocks would include which of the following? Market price less than $5 per share Market price greater than or equal to $5 per share Nasdaq over-the-counter (OTC) stock Non-Nasdaq OTC stock

- Market price less than $5 per share - Non-Nasdaq OTC stock

Which of the following describe a securities exchange? Prices are set by negotiation between interested parties. The highest bid and the lowest offer prevail. Only listed securities can be traded. Minimum prices are established at the beginning of the day..

- The highest bid and the lowest offer prevail. - Only listed securities can be traded. An exchange is not a negotiated market but an auction market in which securities listed on that exchange are traded.

The 5% markup policy applies to

- agency and principal nonexempt securities and transactions, both exchange and OTC traded. - does not apply to prospectus offerings (mutual funds and new issues). - secondary market

All of the following are subject to the 5% markup policy except A) spreads in new stock offerings. B) markdowns. C) markups. D) commissions.

A) spreads in new stock offerings.

Many investors diversify by adding foreign securities to their portfolios. Those who do so with ADRs are least likely to be concerned with A) market risk. B) liquidity risk. C) currency risk. D) political risk.

B) liquidity risk.

Reasons why a corporation might engage in a stock buy-back program would include all of these except A) using the stock for employee stock options. B) increasing earnings per share. C) having stock available for future acquisitions. D) reducing annual interest expense.

D) reducing annual interest expense.

value of right before ex-date

Market price - subscription / # of rights to buy one share + 1

Regarding the taxation of dividends received from corporate securities, which of the following are true? Nonqualified dividends are taxed at the rate the investor's ordinary income will be taxed. Nonqualified dividends are not taxed. Qualified dividends are taxed at a maximum rate specified by the IRS and will depend on the investor's income tax bracket. Qualified dividends are taxed at the rate the investor's ordinary income will be taxed.

Nonqualified dividends are taxed at the rate the investor's ordinary income will be taxed. Qualified dividends are taxed at a maximum rate specified by the IRS and will depend on the investor's income tax bracket.

Which of the following are defined as penny stocks? Nasdaq stock trading at $4 per share OTC stock trading at $4 per share Listed stock trading at $4 per share Pink Sheets stock trading at $4 per share

OTC stock trading at $4 per share Pink Sheets stock trading at $4 per share

Which of the following represent ownership in a corporation? Debentures Convertible bonds Preferred stock Common stock

Preferred stock Common stock

If a corporation attaches warrants to a new issue of debt securities, which of the following would be a resulting benefit to the corporation?

Reduction of the debt securities' interest rate

Which of the following is true with respect to excess capital losses realized by an individual taxpayer? A) They may be carried back up to three years and carried forward indefinitely until exhausted. B) They may be carried forward with a time limit of five years. C) They may be carried forward indefinitely until exhausted. D) No more than $3,000 per year may be used against capital gains.

They may be carried forward indefinitely until exhausted.

Which of the following are characteristics of both stock rights and warrants?

They offer the holder an opportunity to purchase stock at a fixed price

Which of the following transactions would not be subject to the 5% markup policy? A) A client sells shares of an over-the-counter stock and uses the proceeds to purchase shares from your firm's inventory account. B) A client enters an order to purchase one share of a stock to be put in the name of her grandchild. You charge the client the minimum commission for your firm ($15) even though the stock is currently trading at $26 per share. C) Your client enters trades to purchase two different mutual funds in the same fund family. The combined purchases do not qualify for any breakpoints. The client is charged a sales charge of 6.5%. D) Your firm agrees to do an agency cross-transaction between two of your clients. Each client has been charged a commission.

Your client enters trades to purchase two different mutual funds in the same fund family. The combined purchases do not qualify for any breakpoints. The client is charged a sales charge of 6.5%. - In the case of mutual funds, which are always sold by prospectus, the formula for computing the price (NAV plus the sales charge, if any) is clearly listed in that prospectus

In a proceeds transaction for a customer where the proceeds from the liquidation of one stock are used to purchase another stock, the 5% markup policy is computed on the basis of

a combination of both the buy side and the sell side.

If a stock is listed on an exchange or is on Nasdaq, it is not

a penny stock

A Nasdaq market maker buys 1,000 shares of stock from a customer at its bid to satisfy a customer order. This is an example of

a principal trade.

A member of the investment banking department of ABC Securities is explaining some of the advantages and disadvantages of rights and warrants to the board of directors of XYZ Corporation. Which of the following statements could he make? - The exercise prices of stock rights are usually below current market value (CMV) of the underlying security at time of issue. - The exercise prices of warrants are usually above CMV of the underlying security at time of issue. - Both rights and warrants may trade in the secondary market and may have prices that include a speculative (time) value. - Warrants are often issued attached to a bond issue to reduce the interest costs to the issuer.

all

JEG Corporation common stock is currently trading at $25 per share. The par value of JEG stock A) is most likely less than $25 per share. B) is most likely more than $25 per share. C) is most likely $25 per share. D) has nothing to do with the current market value of the stock.

has nothing to do with the current market value of the stock.

A company has reverse split its common stock. The effect on the earnings per share will be

increase

Warrants represent

long-term options to buy stock at a fixed price, and, like options, cannot pay dividends.

Which of the following statements regarding warrants is true?

long-term options to buy stock, - Warrants are often issued with other securities to make the offering more attractive.

The 5% markup policy applies to all of the following secondary market transactions except A) agency transactions in nonexempt unlisted securities. B) agency transactions on an exchange. C) principal transactions in the over-the-counter (OTC) market. D) municipal bond transactions.

municipal bond transactions.

are types of preferred stock except A) convertible preferred. B) cumulative preferred. C) straight cumulative preferred. D) participating preferred.

straight cumulative preferred.

Corporate stocks trade in all of the following locations except A) stock exchanges. B) the commodities market. C) the over-the-counter (OTC) market. D) the third market

the commodities market

All of the following considerations apply to the 5% markup policy except A) the cost of executing the transaction. B) the availability of the security. C) the customer's ability to pay. D) the services rendered by the broker-dealer.

the customer's ability to pay.

The Securities Exchange Act of 1934 applies to all of the following

the extension of credit on purchase of securities. B) registration of broker-dealers. D) secondary market trading. not regulations of new issues (1933)

Dividends from American depositary receipts (ADRs) held by U.S. investors are declared in

the foreign currency but paid in U.S. dollars.

A network of market makers that offers to trade securities not listed on an exchange is called

the over-the-counter (OTC) market.

Common stock that has no voting power, no rights to receive dividends, that has been authorized and issued but is not outstanding is known as

treasury stock

SEC rules require that customers be given a copy of the risk disclosure document before their first transaction in a penny stock. The member firm must receive a signed and dated acknowledgment from the customer that the document has been received. In addition to obtaining the client's signature, the SEC requires the firm to wait at least

two business days after sending the statement before executing the first trade.

A company is offering investors the opportunity to purchase shares for the next five years at a fixed price slightly above today's market price. The company is issuing

warrants