Textbook Chap 3 (SIE)

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Equity holders are owners and are entitled to receive ________, which are derived from corporate ______.

dividends, profits

What time limit exists for issuers/affiliates of actively-traded securities that are repurchasing their own security?

They may not purchase their security within the last 10 minutes of the trade day

If attached to the issuance of a bond, may warrants be traded separately?

Yes. The two may be detached and traded separately

_______ stock fluctuates with the business cycle.

Cyclical

The formula for finding conversion ration on convertible preferred stock is: ______ / ________.

Par, Conversion Price (par for preferred is $100)

What type of stock may be entitled to extra dividends?

In profitable years, participating preferred stockholders may be paid both prior to, and after

The ________ is responsible for overseeing a company and appointing its senior managers.

The board of directors is responsible for overseeing a company and appointing its senior managers.

True or False: The lock-up provision lasts for exactly six months.

False. Although most lock-ups last for six months, there is no regulation which sets a maximum or minimum period.

What is the advantage existing stockholders receive through rights offerings?

The ability to maintain their percentage of ownership and buy additional shares at a discount

What are not considered equity securities?

Fixed-income products, such as bonds and notes

Are ADR holders exposed to currency risk?

Yes, since these securiites will track underlying stock

________ preferred stock allows owners to exchange the preferred shares for common shares.

Convertible

Issued stock - Treasury stock = __________

Outstanding stock

Describe cumulative preferred stock.

Stock that requires payment of any missing dividends before common stockholders are paid

How are voting issues determined, by shares or shareholders?

Voting issues are determined basked on a majority of shares.

List the two types of shared that may be sold under Rule 144.

1) Restricted (unregistered) stock 2) Control stock

______ stock is the amount of stock a corportation has already sold to investors.

Issued

True or False: In bankruptcy, common shares are senior to preferred shares.

False. If a company declares bankruptcy, preferred shares are paid before common shares.

What is a lock up period?

The length of time a pre-IPO shareholder must wait before selling his shares

Under Rule 144, restricted stock must be held for _____

months before it can be sold

six

True or False: Treasury stock has no voting rights and receives no dividends

True

True or False: Common stockholders have the right of vote for payment of dividends

False. Dividend payments are determined by the board of directors

When an issuer or an affiliate is repurchasing its own shares, how many BDs may it use in one day?

Issuers or affiliates may use only one BD a day when repurchasing its own stock

How do shareholder’s typically inspect their company?

By reviewing the annual and quarterly reports that are distributed by the corporation.

_______ stock pays higher than average dividends.

Income stock pays higher than average dividends (

True or False: Warrants are generally attached to the delivery of another security (stock or bond)

True

Existing stockholders receive ______ right for every one to share

What is the benefit of buying convertible preferred stock?

In addition to receiving dividends, investors have the ability to convert the shares into common stock of the company

Describe callable preferred stock.

A form of preferred stock that the issuer can repurchase at a fixed price; it typically offers a higher dividend.

______ stock is the amount of stock a corporation is legally permitted to issue.

Authorized

True or False: A FINRA member firm must disclose whether it has the ability to influence the issuer of securities

True. This is referred to as a control relationship which must be disclosed to investors

Warrants are a ______-term right to buy stock at a preset price

long

If a company’s existing shareholders sell 2 million shares, by what amount will its shares outstanding increase?

Zero. If a company’s existing shareholders are offering their shares, no new shares are being issued

Rights are a _____-term instrument allowing holders to buy additional shares at a discounts price

short

What instruments are used to facilitate trading of foreign securities in the US?

Ameri

True or False: Both common and preferred stockholders are offered preemptive rights

False Preemptive rights are only offered to common stock holders

What are the volume limitations on an affiliate or issuer repurchasing its own security?

No more than 25% of the average daily trading volume (ADTV) over a 4-week period in one day

Regarding rights, options, and warrants, which instrument has the longest maturity?

warrants

True or False: All owners have the right to vote.

False. only common stockholders have the right to vote

What group of stockholders receives dividends first?

Preferred stockholders

True or False: Corporate shareholders have limited liability

True. Shareholders can only lose their original investment if a company declares bankruptcy.

True or False: Issuers of unsponsored ADRs are subject to SEC reporting requirements

False. Issuers of ADRs, foreign governments, and foreign private issuers are exempt from the reporting requirements

ABC hasn’t paid dividends in four years. If declared in year 5, what will a 3% non-cumulative preferred owner receive?

$3. Since the shares are non-cumulative, ABC is only required to pay the full amount for year 5.

What is a derivative?

A financial product that derives its value from the value of underlying assets such as stocks, bonds, or mortgages.

Define control stock.

Stock that is owned by officers, directors, or grater thank 10% owners/ It is also referred to as affiliated stock.

Who are considered the owner of a corporation?

Common and preferred stockholders

True or False: Convertible preferred stock may be converted into a bond.

False. Convertible securities are convertible into common stock.

True or False: Cumulative voting benefits smaller shareholders since they can concentrate votes for a specific director.

True. However, it does not guarantee them representation on the board.

True or False: If a BD holds a customer’s stock in street name, the BD may vote on behalf of the customer

False. Without permission, BDs holding a customer’s stock in street name may not vote on behalf of the customer

What is a stock legend?

A notice on stock certificates stating that selling is restricted unless the shares are SEC-registered or exempt

True or False: Common shares vote to authorize the issuance of additional shares of a company

True

True or False: Callable preferred shares allow an investor to buy shares of common stock at a fixed price.

False. If preferred shares are callable, the issuer is allowed to buy back the shares at a fixed price

ABC hasn’t paid dividends in four years. If declared in year 5, what will a 3% cumulative preferred shareholder receive?

CUMULATIVE
$15($100×3% = $3 per year x 5 years of dividends)

What voting method permits common shareholders to vote in any manner in which they choose?

Cumulative voting

True or False: Customers of a broker-dealer can request to see the firm’s balance sheet

True. If requested, customers must be provided with the broker-dealer’s most recent balance sheet.

True or False: A stockholder is able to vote for a director, but not an off

Issuers/affiliates repurchasing their own shares may not buy the shares in the last ______ minutes of the trading day

30

What voting method permits one vote for each share owned to be voted for each director?

Statutory

What is the longest duration for a warrant?

Perpetual

May a warrant be detached and traded separately?

Yes

What is the purpose of a lock-up provision?

To prevent large shareholders from selling immediately after an IPO, since it could cause the share price to fall

What is restricted stock?

Unregistered stock that is typically bought through a private placement before shares are offered publicly

A ______ period is a length of time during which shareholders and insiders are prohibited from selling their shares

A lock-up period is a length of time during which share holds and insiders are prohibited from selling their shares

Name two priorities that preferred stock has over common stock

order of liquidation and dividends

True or False: With approval of the board, preferred dividends can be skipped in some years.

True. Unlike bond interest, preferred dividends are not required to pay each year.

Who is a lock-up agreement meant to protect?

Shareholders/investors

True or False: ADRs must be issued with cooperation from the foreign issuer

False. ADRs that are issued without assistance from the foreign company are considered unsponsored

______ stocks are associated with companies that are resistant to recession

Defensive

List the securities the are considered equities

common and preferred stocks

True or False: All employees of a corporation are control persons

False. Control people are officers, directors, and greater thank 10% owners

If an issuer is buying its own securities on an exchange, how many broker-dealers is it allowed to use?

It may only use one broker-dealer per trading session

List some of the rights that shareholders receive

Voting, inspecting books and records, receiving dividends, evidence of ownership, and transferability

What security helps clients to indirectly buy foreign shares?

And American depository receipt (ADR)

$________ is normally the par value for preferred stock

100

_________ stocks are associated with major companies that have records of high earnings and dividend payments

Blue-chip