Chapter 3

Question 1

What kind of stock has a fixed dividend, but the payment is not guaranteed and is determined by the company’s earnings?

Answer 1

Preferred stock

Question 2

What kind of stock will fluctuate based upon the value of the underlying common stock?

Answer 2

Convertible preferred stock

Question 3

What kind of stock must be sold under the provisions of Rule 144 (unregistered stock that’s acquired through a private placement)

Answer 3

Restricted stock

Question 4

Under what provision does the SEC notification requirement not apply towards the sale of registered securities being sold by non affiliates?

Answer 4

Rule 144

Question 5

What shares must receive all previously unpaid dividends before common shares receive dividends?

Answer 5

Cumulative preferred shares

Question 6

What gives existing shareholders the ability to maintain their percentage of ownership and control of the company?

Answer 6

Preemptive rights

Question 7

What is a risk that’s unique to ADRs as opposed to domestic stock?

Answer 7

Political risk

Question 8

A company makes a tender offer for 40,000 shares at $10. An investor who owns 1,000 shares will receive what amount?

Answer 8

$10,000

Question 9

What is an instrument that allows the holder to buy stock at a predetermined price for a long period?

Answer 9

A warrant

Question 10

Why would a company issue warrants?

Answer 10

To pay a lower interest of its bonds