Equity securities, other types of securities, & Corp. Actions

Question 1

What is a security?

Answer 1

A security is a financial instrument that represents an ownership position, a creditor relationship, or rights to ownership as represented by an option.

Question 2

True or False: Stocks are considered a type of security.

Answer 2

True

Question 3

Fill in the blank: __________ are bonds issued by corporations to raise capital.

Answer 3

Corporate securities

Question 4

Which of the following is NOT a type of security? A) Stocks B) Bonds C) Real Estate D) Options

Answer 4

C) Real Estate

Question 5

What is the primary regulatory body overseeing securities in the United States?

Answer 5

The Securities and Exchange Commission (SEC)

Question 6

Common stock class categories are

Answer 6

authorized, issued, outstanding, and treasury.

Question 7

What is a characteristic of common stock?

Answer 7

Common stock typically gives shareholders voting rights in corporate decisions.

Question 8

True or False: Common stockholders have a higher claim on assets than preferred stockholders in the event of liquidation.

Answer 8

False

Question 9

Fill in the blank: Common stock represents _____ in a company.

Answer 9

ownership

Question 10

Which of the following is NOT a characteristic of common stock? A) Dividends B) Voting rights C) Guaranteed returns D) Ownership

Answer 10

C) Guaranteed returns

Question 11

What is the primary benefit of owning common stock?

Answer 11

The potential for capital appreciation and dividends.

Question 12

number of outstanding shares X the current market value (CMV)

Answer 12

market cap = outstanding x CMV

Question 13

What is the declaration date in the context of dividend disbursement?

Answer 13

The declaration date is the date on which a company’s board of directors announces the intention to pay a dividend.

Question 14

True or False: The ex-dividend date is the date by which a shareholder must own the stock to receive the declared dividend.

Answer 14

True

Question 15

Fill in the blank: The __________ date is the date on which the dividend payment is actually made to shareholders.

Answer 15

payment

Question 16

Which of the following dates is typically the last date a shareholder can buy a stock to be eligible for the next dividend? A) Declaration Date B) Ex-Dividend Date C) Payment Date

Answer 16

B) Ex-Dividend Date

Question 17

What is the record date in relation to dividend disbursement?

Answer 17

The record date is the date set by the company to determine which shareholders are eligible to receive the dividend.

Question 18

voting rights that favor smaller investors; # of shares owned multiplied by board seats/items on the ballet, votes may be applied more flexibly

Answer 18

cumulative

Question 19

statutory voting

Answer 19

one vote per share owned for each item on the ballot, favors larger shareholders,* i.e. 400 shares = 400 votes per ballot item*

Question 20

Your customer owns 200 shares of Kendall Co. stock, which is under a statutory voting system. With 8 open board seats, what is the maximum number of votes your customer may apply towards one board seat?

A. 8 votes, B. 1600 votes, C. 200 votes, or D. 25 votes

Answer 20

C. 200 votes

One vote for every share of stock owned may be applied per individual ballot item.

Question 21

Potential for growth or appreciation, income from dividends, and limited liability are

Answer 21

benefits of owning common stock.

Question 22

Name some of the risks associated with owning common stock

Answer 22

market risk- stock’s price is susiptible to fluctuations stemming from public perception of company or investor sentiment;

decreased or no dividends- possibility that income from dividends will decrease or cease to be paid entirely if company loses money

low priority at dissolution- holders of company bonds and preferred stock take priority, common stockholders have residual rights to assets upon dissolution

Question 23

entitles common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company offers them to the general public

Answer 23

stock rights (preemptive rights)

Question 24

warrants

Answer 24

certificate granting its owner the right to purchase securities from the issuer at a specified price, normally HIGHER than current market price, thought of as an ‘added sweetner’ to purchasing other securities

Question 25

What differentiates a growth stock from a value stock?

Answer 25

**-growth stock**: expected to grow sales and earnings at a faster rate than the market average, high price-to-earnings (P/E) ratio, typically don't pay dividends **-****value stock**: company trading at a lower price than its intrinsic or book value, high dividend yield, low price-to-book (P/B) ratio, and a low P/E ratio, often issue dividends

Question 26

What is Rule 144?

Answer 26

Rule 144 is a regulation that provides a safe harbor for the sale of restricted and control securities without registration under the Securities Act of 1933.

Question 27

True or False: Restricted stock can be sold freely without any conditions.

Answer 27

False

Question 28

Fill in the blank: Control stock is owned by ________ of the issuing company.

Answer 28

affiliates

Question 29

Which of the following is a requirement for the sale of restricted stock under Rule 144? A) Public company status B) Holding period C) No limits on volume

Answer 29

B) Holding period

Question 30

What is the maximum amount of control stock an affiliate can sell in a three-month period under Rule 144?

Answer 30

The greater of 1% of the outstanding shares or the average weekly trading volume over the preceding four weeks.

Question 31

# Fill in the blank A _ specifies the number of shares a company is authorized to issue.

Answer 31

corporate charter

Question 32

True or False) All issued stock is outstanding.

Answer 32

**False:** Sometimes it is, but other times its not. Sometimes a corporation buys back its outstanding stock, and that stock is considered issued but no longer out standing.

Question 33

Registered Public Offering (RPO)

Answer 33

an offer and sale of securities that has been registered under the Securities Act, most securities are required to go through registration

Question 34

Restricted securities (restricted stock)

Answer 34

Restricted securities are those initially acquired by investors through some means other than a registered public offering. Restricted securities may not be sold by investors until they have been held (fully paid) for six months.

Question 35

**True or False)** Restricted stock becomes registered stock (unrestricted) after the first legal secondary market sale.

Answer 35

**True:** When issued, these shares will have wording (called a restrictive legend) on the certificate. You may see the phrase "the sale effectively registers the stock" associated with this action.

Question 36

Stocks owned by directors, officers, or persons who own or control 10% or more of the issuer's voting stock are called

Answer 36

control stocks

Question 37

Affiliated individuals are often referred to as

Answer 37

*control persons* or *insiders*

Question 38

The volume limitations on the number of shares that can be sold under Rule 144 are the **greater of**

Answer 38

* 1% of the outstanding shares of the company, or * the average weekly trading volume over the most recent four weeks, over a 90-day period or 4 times per year.

Question 38

DERP

Answer 38

The order in which dividends are distributed. **D**eclaration, **E**x-dividend, **R**ecord, and **P**ayable (ex-date and the record date are normally the same date.)

Question 39

**True or False**) Because most trades settle regular way (one business day after the trade date), the stock must be purchased before the ex-dividend date.

Answer 39

**True:** The ex-date is normally the same as the record date. A customer must purchase the stock at least one business day before the record date to qualify for the dividend.

Question 40

The _ is set by a regulator (an exchange or FINRA).

Answer 40

ex-dividend date

Question 41

The company's board establishes the

Answer 41

declaration date, record date, and payable date.

Question 42

To receive a dividend, the owner's name must appear in the transfer agent's books by

Answer 42

*the record date*. Though the ex-date and the record date are the usually same date, a reference to "on the transfer agent's books" usually refers to 'record date.'

Question 43

True or False) A customer has held an account with a broker-dealer for over one year. A registered representative associated with the firm recommends the purchase of an unlisted security trading at $3.50. Both suitability and disclosure statements must be obtained prior to the trade.

Answer 43

**False:** Established customers are exempt from the suitability statement requirement but not from the disclosure requirements when penny stocks are being **solicited**.

Question 44

An investor owning 400 shares of CDS stock receives notice that the stock will be split. When the split is complete, the customer owns 600 shares of stock. The split must have been

Answer 44

*a forward, uneven split*. Because the split resulted in the investor owning more shares, it was a forward split. The ratio of shares owned before and after the split was 3-for-2 (600:400 in this case), the split was an uneven split.

Question 45

An investor would expect which type of preferred stock to pay the highest stated dividend rate? A) Convertible, B) Callable, C) Cumulative, D) Straight

Answer 45

**B)** Callable With callable preferred stock, to compensate for the possibility that the shares may be called, the issuer pays a higher dividend than with straight preferred. Cumulative and convertible preferred have positive characteristics that would justify a lower fixed dividend than straight preferred (noncumulative).

Question 46

An investor interested in quarterly income should invest in: A. T-bonds, B. STRIPS, C. corporate bonds, D. utility company stock

Answer 46

**D)** utility company stock Utility stocks generally pay quarterly dividends, whereas corporate and Treasury bonds pay interest semiannually. STRIPS pay at maturity.

Question 47

What happens to prices of preferred stock as interest rates rise?

Answer 47

Prices of preferred stock will fall ## Footnote Preferred stock is sensitive to interest rates because it pays a fixed dividend.

Question 48

What is cumulative preferred stock?

Answer 48

Cumulative preferred stock accrues payments due to shareholders if dividends are reduced or suspended ## Footnote Unpaid dividends accumulate on the company's books until paid.

Question 49

What are dividends in arrears?

Answer 49

Dividends that have accumulated and are owed to cumulative preferred stockholders ## Footnote These are paid when the company resumes dividend payments.

Question 50

What is callable preferred stock?

Answer 50

Preferred stock that a company can buy back from investors at a stated price after a specified date ## Footnote This allows companies to replace high fixed-dividend obligations with lower ones when interest rates decline.

Question 51

What happens to dividend payments when a corporation calls a preferred stock?

Answer 51

Dividend payments cease on the call date ## Footnote The corporation may pay a premium above the par value for the call.

Question 52

What is the typical premium a corporation might pay when calling a preferred stock?

Answer 52

$103 for a $100 par value stock ## Footnote This premium compensates investors for the call privilege.

Question 53

True or False: Preferred stock prices increase as interest rates rise.

Answer 53

False ## Footnote Prices tend to fall as interest rates rise.

Question 54

Fill in the blank: Cumulative preferred stock pays __________ dividends before common stockholders.

Answer 54

accrued ## Footnote This includes both dividends in arrears and current year dividends.

Question 55

What is a convertible preferred stock?

Answer 55

A preferred stock that the owner can exchange for a fixed number of shares of the issuer's common stock ## Footnote Convertible preferred stocks allow investors to convert their shares to benefit from potential capital gains.

Question 56

Why is convertible preferred stock generally issued with a lower stated dividend?

Answer 56

Because investors may have the opportunity to convert to common shares and enjoy greater capital gain potential ## Footnote This makes convertible preferred stocks attractive despite lower dividends.

Question 57

What type of dividend rates may some preferred stocks have?

Answer 57

Adjustable (or variable) dividend rates ## Footnote These rates are usually tied to interest rate benchmarks, such as Treasury bills.

Question 58

Who determines the frequency of adjustments for adjustable preferred stock dividends?

Answer 58

The issuer ## Footnote This allows the dividend payments to remain stable in relation to current interest rates.

Question 59

What is participating preferred stock?

Answer 59

A type of preferred stock that offers owners an additional share of corporate profits after all other dividends are paid ## Footnote The method for calculating this additional dividend is outlined at issuance.

Question 60

For investors looking for fixed income, which type of preferred stock would be least appropriate?

Answer 60

Adjustable-rate preferred stock ## Footnote This is due to its variable dividend nature.

Question 61

Can a preferred stock be both cumulative and straight?

Answer 61

No, a preferred stock may be either cumulative or straight, not both ## Footnote Cumulative preferred stocks accumulate unpaid dividends, while straight preferred stocks do not.