Chapter 1 Flashcards
(25 cards)
A company you own common stock in has just filed for bankruptcy. As a shareholder, you will have the right to receive:
a. The par value of the common shares
b. New common shares in the reorganized company
c. A percentage of your original investment
d. Your proportional percentage of residual assets
d. Your proportional percentage of residual assets
A corporation may pay a dividend in which of the following ways?
a. Stock
b. Cash
c. Stock of another company
d. All of the above
d. All of the above
ABC common stock has declined dramatically in value over the last quarter but the dividend it has declared for payment this quarter has remained the same. The dividend yield on the stock has:
a. Not changed because the board has to declare the dividend amount
b. Gone down because the yield is a stated rate
c. Gone up as the price of ABC has fallen
d. Been fixed at the time of issuance
c. Gone up as the price of ABC has fallen
All qualified dividends for ordinary income earners are:
a. Taxed as ordinary income each year
b. Tax-free income
c. Taxed as special interest-free income
d. Taxed at a set rate of 15%
d. Taxed at a set rate of 15%
All of the following are rights of common stockholders, except:
a. Right to elect the board of directors
b. Right to vote for executive compensation
c. Right to vote for a stock split
d. Right to maintain their percentage of ownership in the company
b. Right to vote for executive compensation
Which of the following is not true regarding American Depositary
Receipts (ADRs)?
a. They are receipts of ownership of foreign shares being held abroad in a U.S. bank.
b. Each ADR represents 100 shares of foreign stock, and the ADR holder may request delivery of the foreign shares.
c. ADR holders have the right to vote and to receive dividends that the foreign corporation declares for shareholders.
d. The foreign country may issue restrictions on the foreign ownership of stock.
b. Each ADR represents 100 shares of foreign stock, and the ADR holder may request delivery of the foreign shares.
An investor buys a 10% preferred stock at 110. What is their current yield?
a. 10.4%
b. 9.1%
c. 10%
d. 9.5%
b. 9.1%
The current yield is found by using the following formula: Annual
income/current market price of $10/$110 = 9.1%.
An investor buys 100 shares of XYZ. 7% convertible preferred stock which is convertible into XYZ common stock at $20 per share. How many shares of common stock will the investor receive upon conversion?
a. 5
b. 400
c. 500
d. 5,000
c. 500
First you must determine the number of shares. Par/conversion
price = 100/20 = 5 multiplied by the number of preferred shares: 5 x 100 = 500.
An investor has purchased shares of a foreign company through an ADR
Which of the following is not true
a. The ADR may represent one or more shares of the company’s common stock.
b. The dividend will be paid in U.S. dollars.
c. The investor may elect to exchange the ADR for the underlying common shares.
d. The investor is subject to currency risk.
b. The dividend will be paid in U.S. dollars.
An ADR may represent more than one share of the company’s common stock and may be exchanged for the ordinary common shares. The dividend, however, is paid in the foreign currency and is received by the investor in U.S. dollars; as a result, the investor is subject to currency risk.
An investor owns 100 shares of XYZ 8% participating preferred stock.
XYZ’s common stock pays a quarterly dividend of $.25. How much will the investor earn each year in dividends?
a. $825
b. $90
c. $180
d. $900
d. $900
The investor will receive $8 per share x 100 shares: $800 plus $1 per
share because it is participating, so $800 + $100 = $900.
An investor who buys a 7% cumulative preferred stock will receive semiannual dividends of:
a. $7 per share
b. 7% of the corporate profits
c. $3.50 per share
d. 3.5% of the corporate profits
c. $3.50 per share
The investor who buys a 7% preferred stock is entitled to $7 per year or $3.50 every six months.
As the owner of a cumulative preferred stock, an investor would have all of the following rights, except:
a. Voting if dividends are missed for a significant period of time
b. Right to receive past dividends not paid by the corporation
c. Right to exchange the preferred for the underlying common shares
d. The right to receive the past dividends before common holders receive a dividend
c. Right to exchange the preferred for the underlying common shares
Authorized stock is all of the following, except:
a. The maximum number of shares a company may sell
b. Arbitrarily determined at the time of incorporation and may not be changed
c. May be sold in total or in part when the company goes public
d. Sold to investors to raise operating capital for the company
(B) Arbitrarily determined at the time of incorporation and may not be changed
Authorized stock is all of the answers listed, except the number of authorized shares may be changed by a vote of the shareholders.
Common stockholders do not have the right to vote on which of the following issues?
a. Election of the board of directors
b. Stock splits
c. Issuance of additional common shares
d. Bankruptcy
(D) bankruptcy
Common stockholders do not have voting power in the matter of bankruptcy.
Common dividends are all of the following except:
a. A portion of the earnings of the company
b. A source of income for the investor
c. Generally paid quarterly
d. A figure determined by subtracting the current yield from the current market price
(D) A figure determined by subtracting the current yield from the current market price
Dividend yield (or current yield) is found by dividing the annual income by the current market price.
If a 5% stock dividend is paid to an investor who owns 800 shares of stock already, the investor will receive how many shares?
a. 4 shares
b. 8 shares
c. 40 shares
d. 80 shares
(C) 40 shares
800 shares x 5% = 40 shares.
It may be necessary for a company to repurchase some of its stock, to increase its treasury stock, for which one of the following reasons:
a. To maintain control of the company
b. To allow the company to pay out smaller dividends
c. To increase the funding in the company’s treasury
d. To reassure its investors that all is well
(A) To maintain control of the company
In addition to maintaining control, a company may want to increase its earnings per share, fund employee stock option plans, or use shares to pay for a merger or acquisition.
An investor owns 1000 shares of XYZ which is trading at $50 per share. XYZ Declares a 5:4 stock split the investor will now own:
A. 1250 at $80
B. 1250 at $40
C. 800 at $62.50
D. 1250 at $70
B. 1250 at $40
For a 5:4 stock split multiply the number of shares by 5/4 = 5/4 × 1000 = 1250
and multiply the stock price by the reciprocal of the fraction 4/5 = 4/5 x $50=$40.
A company you own common stock in has just filed for bankruptcy, as a shareholder you will have the right to receive:
A. The par value of the common shares
B. New common shares in the reorganized company
C. A percentage of your original investment
D. Your proportional percentage of residual assets
D. Your proportional percentage of residual assets
As a common stockholder, you will have the right to receive your percentage of any residual assets.
ABC common stock has declined dramatically in value over the last quarter but the dividend it has declared for payment this quarter has remained the same. The dividend yield on the stock has:
A. Not changed because the board has to declare the dividend amount
B. Gone down because the yield is a stated rate
C. Gone up as the price of ABC has fallen
D. Been fixed at the time of issuance
C. Gone up as the price of ABC has fallen
The yield on the stock will have gone up as the price has fallen because the dividend has remained constant.
An investor who buys a 7% cumulative preferred stock will receive semi annual dividends of:
A. $ 7 per share
B. 7% of the corporate profits
C. $ 3.50 per share
D. 3.5% of the corporate profits
C. $ 3.50 per share
The investor who buys a 7% preferred stock is entitled to $ 7 per year or $
3.50 every 6 months.
Authorized stock is all of the following except:
A. The maximum number of shares a company may sell
B. Arbitrarily determined at the time of incorporation and may not be changed
C. May be sold in total or in part at the beginning of the company
D. Sold to investors to raise operating capital for the company
B. Arbitrarily determined at the time of incorporation and may not be changed
If the shareholders vote and approve an increase in the number of shares, then more stock may be issued.
MAH has an 11% convertible preferred stock trading in the marketplace that is quoted at $ 117. What is its current yield?
A. 12 %
B. 9.4 %
C. 11 %
D. 8.2%
B. 9.4 %
The current yield can be found by dividing the annual income by
the current market price or in this case 11/117 = 9.4%.
The ex dividend date for a stock is controlled by the:
A. SEC
B. Board of directors
C. FINRA
D. FRB
C. FINRA
Ex dividend dates are controlled by FINRA under the Uniform Practice Code.
Once the company sets the record date for the dividend FINRA sets the ex dividend date for the stock.
