Unit 1 Quiz Deck Flashcards
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
A) II and III
B) II and IV
C) I and IV
D) I and III
D) I and III
Common stockholders never vote directly on dividend payment or size. They may elect the BOD indirectly influencing the policy on payment of dividends and may vote on issues concerning the company’s capitalization, such as the issuance of more common stock. They do not vote on day-to-day business decisions, such as suppliers used.
Voting rights are a privilege generally afforded to
A) neither common nor preferred shareholders.
B) common shareholders only.
C) both common and preferred shareholders.
D) preferred shareholders only.
B) common shareholders only.
One of the differences between common and preferred shareholders is that preferred shareholders generally have (with few rare exceptions) no voting rights.
An investor having no affiliation with CDS Company has just purchased shares that were sold subject to Rule 144. This investor
A) can only sell subject to volume limits.
B) must wait six months before selling shares subject to volume limits.
C) can sell the shares unrestricted at any time.
D) must wait six months before any sales can be made
C) can sell the shares unrestricted at any time.
Selling shares under Rule 144 effectively registers the shares. In other words, buyers of stock being sold subject to Rule 144 are not subject to any restrictions if they choose to resell.
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
A) nothing.
B) $1.00.
C) $4.00.
D) $2.50.
C) $4.00.
With noncumulative preferred stock, missed or skipped dividends need not be paid or made up. However, in order to pay common shareholders in any year, preferred shareholders must receive their full dividend for that year. While it can be paid in one annual payment, quarterly, or however the board approves it to be paid, the total in this case would be $4.00. 4% × $100 par value = $4.00.
By electing a board of directors (BOD), stockholders have
A) neither a say in the company’s management nor a say in any of the day-to-day details of its operations.
B) a say in the company’s management but are not involved in the day-to-day details of its operations.
C) a say in the company’s management and all day-to-day details of its business operations.
D) a say in the day-to-day details of its operations but no say in the management selected to carry out those operations.
B) a say in the company’s management but are not involved in the day-to-day details of its operations.
By electing a BOD, stockholders have a say in the company’s management but are not involved in the day-to-day details of its operations
For preferred shares, the annual dividend payment is
A) subject to variation and stated as a percentage of its par value.
B) fixed and stated as a percentage of its current market value (CMV).
C) subject to variation and stated as a percentage of its current market value (CMV).
D) fixed and stated as a percentage of its par value.
D) fixed and stated as a percentage of its par value.
A preferred stock’s annual dividend payment is its fixed rate of return, unlike that of common shares where the dividend is subject to variation.
A certificate issued by a company granting its owner the right to purchase securities from the issuer at some specified price years into the future would best be described as
A) a warrant.
B) a call option.
C) a proxy.
D) a rights certificate.
A) a warrant.
A rights certificate is a very short-term security that grants the holder the right to buy the common stock of the company at a price lower than the current market price. A warrant is a long-term security that grants its owner the right to purchase securities from the issuer at a specified price that is higher than the current market price at the time the warrants are issued and at some point, in the future. Note that while the exercise price is higher than the current market value when the warrants are issued, it is hoped that the exercise price will be below current market value when the warrants are eventually exercise
A company has distributed profits to its shareholders. This type of distribution would most likely be in the form of
A) warrants.
B) bonds.
C) dividends.
D) options
C) dividends.
The distribution of profits to shareholders would generally be in the form of dividends to be received at the discretion of the board of directors (BOD). Bonds and warrants are other types of securities a company might issue, while options are a derivative product that would not be issued by the company.
CDT Corporation has issued 4.5% callable preferred shares. If these shares are ever called in, stockholders should expect that the shares would be called in at
A) current market value.
B) par value.
C) par value or higher.
D) par value or lower
C) par value or higher.
In return for the call privilege, the corporation may pay a premium exceeding the stock’s par value at the time of the call. It’s reasonable that a shareholder would expect to receive at least par value or higher in the event of a call.
Which of the following regarding established customers of a broker-dealer and the purchase of penny stocks are true?
I. They are exempt from the suitability statement requirement.
II. They are not exempt from suitability statement requirement.
III. They are exempt from the disclosure rules.
IV. They are not exempt from the disclosure rules
A) I and IV
B) II and III
C) I and III
D) II and IV
A) I and IV
An established customer is one who has effected a non-penny securities transaction or made a deposit of funds or securities into the account at least one year before the proposed penny stock trade or has made three purchases of penny stocks on three separate days involving three separate issues. Established customers are exempt from the suitability statement required but are subject to the disclosure rules.
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?
A) 125 shares
B) 250 shares
C) 100 shares
D) 25 shares
D) 25 shares
Stock rights (also known as preemptive rights or subscription rights) give current shareholders the ability to preemptively purchase enough shares to maintain their proportionate ownership of the corporation. This prevents their dividend and voting power from being diluted. The shares outstanding in this case will go from 1,000,000 to 1,250,000. This investor must thus go from owning 100 shares out of 1,000,000 to 125 shares out of 1,250,000. This would require that the investor be able to purchase an additional 25 shares.
An investor owns 4% preferred stock participating to 6%. This means the investor
A) must receive an additional 4% in any year the board declares the 6% participating be paid.
B) must receive at least 6% each year.
C) could receive an additional 2% over the stated 4% dividend if the board declares it.
D) could receive an additional 6% over the stated 4% dividend if the board declares it
C) could receive an additional 2% over the stated 4% dividend if the board declares it.
If a preferred stock is described as 4% preferred participating to 6%, the company pays its holders up to 2% in additional dividends in profitable years if the board of directors declares it.
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
A) convertible.
B) adjustable rate.
C) callable.
D) participating.
B) adjustable rate.
Because the dividend payment adjusts to current interest rates, the price of the stock remains relatively stable. In other words, it is the return that fluctuates rather than the price.
LMN Corporation has a $60 par, 4% preferred stock currently trading at $45 per share. Its annual dividend is
A) $24.00.
B) $4.00.
C) $2.40.
D) $1.80.
C) $2.40.
For preferred shares, the annual dividend is stated as a percentage of par. In this case, 4% of par value of $60 equals $2.40.
For restricted stock (unregistered) held by a nonaffiliated, which of the following applies?
A) Six-month holding period, with volume limits thereafter
B) No holding period, but volume limits always apply
C) No holding period or any volume restrictions
D) Six-month holding period, with sales allowed freely thereafter
D) Six-month holding period, with sales allowed freely thereafter
For restricted stock (unregistered) held by a nonaffiliated, a six-month holding period before any sales can be made applies. After the holding period, sales can be made freely.
