Chapter 3 - Equity Securities

Question 1

(True or False) ADRs are securities that are priced in dollars.

Answer 1

True

Question 2

(True or False) ADRs price reflects the value of the underlying stock and currency fluctuations of the underlying issuer’s host country.

Answer 2

True

Question 3

(True or False) ADRs increased trading value and enhanced liquidity in the US markets lead to prices that are virtually identical to those of the underlying stock in the issuers host country.

Answer 3

False

Question 4

(True or False) ADRs may be listed on an exchange and may be sponsored by the company.

Answer 4

True

Question 5

Which shares of preferred stock may increase the most if the value of the company’s common stock appreciates?

Answer 5

Convertible preferred stock

Question 6

Preemptive rights give existing stockholders the right to:

Answer 6

maintain their proportionate interest in a corporation.

Question 7

During a period of stable interest rates, which type of preferred stock tends to be the most volatile?

Answer 7

Convertible preferred stock

Question 8

(True or False) The number of outstanding shares is always equal to the number of shares issued.

Answer 8

False

Question 9

(True or False) Treasury stock is previously issued shares that are no longer outstanding.

Answer 9

True

Question 10

(True or False) Shareholders vote to authorize the payment of dividends.

Answer 10

False

Question 11

(True or False) Cumulative voting is most beneficial for small shareholders.

Answer 11

True

Question 12

Securities may be sold over _____ days through unsolicited broker’s trades or to a dealer that is acting as principal.

Answer 12

90

Question 13

(True or False) Filing Form 144 is required if selling no more than 5,000 shares and $50,000 of securities.

Answer 13

False

Question 14

What type of securities are acquired through a private placement?

Answer 14

Restricted securities

Question 15

What is the holding period for restricted stock?

Answer 15

Six months

Question 16

What is the holding period for control stock?

Answer 16

There is no holding period.

Question 17

How many shares can be sold when filing Form 144?

Answer 17

1% or the average weekly trading volume of the past 4 weeks. Whichever is greatest.

Question 18

Stock of companies whose value fluctuates with the business cycle (household appliances, automobiles, etc.)

Answer 18

Cyclical

Question 19

Stock of companies that are resistant to recession (utilities, tobacco, etc.)

Answer 19

Defensive

Question 20

Stock of strong, well-established, dividend paying companies.

Answer 20

Blue Chip

Question 21

Stock of companies that pay higher than average dividends in relation to market price.

Answer 21

Income

Question 22

Facilitates the trading of foreign stock in U.S markets.

Answer 22

American Depository Receipts

Question 23

Stock of companies with sales and earnings that are expanding faster than the economy. Pay little to no dividends.

Answer 23

Growth

Question 24

Conversion Ratio =

Answer 24

Par / Conversion Price

Question 25

Preferred stock that allows stockholders to share in dividends paid to common stockholders.

Answer 25

Participating preferred stock

Question 26

Preferred stock that permits the issuer to remove the stock from the market.

Answer 26

Callable preferred stock

Question 27

Preferred stock that makes up for dividends that were not paid in previous years.

Answer 27

Cumulative preferred stock

Question 28

Preferred stock that can be exchanged for common stock.

Answer 28

Convertible preferred stock