Unit 2 SIE

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56 Terms

1
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LMN Corporation has 10 million shares of common stock outstanding. LMN intends to offer an additional 2 million shares through a stock rights offering in order to raise additional capital. Your customer owns 500,000 common shares of LMN Corporation. How many stock rights will your customer receive when the rights are issued?

500,000

2
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In a proxy contest, which of the following must register with the Securities and Exchange Commission (SEC)?

  1. All shareholders who have been approached by solicitors

  2. All persons participating in proxy solicitation

  3. The upper management of the corporation who are also shareholders

  4. All persons providing shareholders with unsolicited advice

2 & 4

3
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Which of the following is not correct regarding a rights offering?

The number of rights issued is based on the number of new shares to be issued.

4
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which is true about a rights offering?

  • The rights offering allows the holder to exercise and purchase the stock at a price lower than the market.

  • The subscription period is typically 30 to 45 days.

  • Rights are issued to existing shareholders on a one-right-for-one-existing-share basis.

5
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A stock is about to undergo a corporate action in which the shares will be cancelled and the shares of a different company will be issued to shareholders. This action is most likely the result of a

merger or acquisition

6
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Owning an American depositary receipt (ADR) effectively eliminates which of the following risks?

Liquidity Risk

7
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Which of the following statements about rights and warrants is true?

Rights are short term and warrants are long term

8
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All of the following are possible actions of an investor who has received stock rights except

hold the rights for a possible long-term capital gain.

9
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An investor who has recoeved stock rights can do the following…

sell the rights for a short-term capital gain or loss.

Exercise the right to purchase the new stock at a discount.


allow the rights to expire unexercised.

10
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A customer owns 1,000 shares of stock subject to a 1:3 reverse stock split. The position will now consist of

fewer shares worth more per share with the same net position value

11
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A corporation is issuing a bond with an interest rate below that which is commonly being offered for this type of bond. To improve the bond's marketability without reducing the capital to be obtained, which of the following actions might the corporation take?

Offer a warrant on the stock with each bond

12
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Under what circumstances could a member firm holding stock in street name vote the shares as it sees fit?

  1. If the customer signs and returns a proxy statement but does not indicate how to the shares are to be voted

  2. If the customer does not return the signed proxy statement by the 10th day before the shareholders' meeting

  3. If the matters to be voted on are of major importance

  4. If the matters to be voted on are of minor importance

2 & 4

13
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Issuers are not required by the Securities Exchange Commission (SEC) to give notice of corporate actions to shareholders for actions such as

interest on the issuer’s bonds

14
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Which of the following rights are specific to holders of American depositary receipts and are not available to owners of domestic common stock?

The right to convert to the underlying asset

15
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If a stockholder submits a proxy for the annual meeting but then choses to attend the meeting to vote, what becomes of the proxy?

the voting proxy would be revoked

16
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Rule 144 imposes volume limitations on the number of shares that can be sold by

  1. control persons selling registered stock held for one year.

  2. control persons selling restricted stock held for two years.

  3. nonaffiliates selling registered stock held for one month.

  4. nonaffiliates selling restricted stock held for more than six months.

  1. control persons selling registered stock held for one year.

  2. control persons selling restricted stock held for two years.

17
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Which of these is considered a standard corporate action where adjustments made to cost basis, for outstanding shares, are standardized?

Stock Split

18
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For registered shares held by an affiliate (known as control stock), which of the following applies?

No holding period, but volume limits always apply

19
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Which of the following is a true statement regarding warrants?

Warrants are normally issued along with a bond offering as a unit

20
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A corporation with 1 million shares of stock outstanding wishes to sell another 250,000 shares. When management conducts a rights offering, a shareholder owning 100 shares will be given stock rights to purchase how many additional shares?

25 shares

Stock rights (also known as preemptive rights or subscription rights) give current shareholders the ability to preemptively purchase enough shares to maintain their proportionate ownership of the corporation. This prevents their dividend and voting power from being diluted. The shares outstanding in this case will go from 1,000,000 to 1,250,000. This investor must thus go from owning 100 shares out of 1,000,000 to 125 shares out of 1,250,000. This would require that the investor be able to purchase an additional 25 shares.

21
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what is a rights offering?

A rights offering, or rights issue, is when a company gives its existing shareholders the right, but not the obligation, to buy additional new shares of the company at a discount to the current market price. This process allows the company to raise capital while giving current shareholders an opportunity to maintain their proportional ownership and increase their stake in the company. The rights can be exercised to buy more shares, sold to another party, or ignored entirely.  

22
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Which of the following best describes the trade execution of American depositary receipts (ADRs)?

Trades are executed domestically in U.S. dollars.

23
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Your customer is aware that a corporate action has taken place where the adjustment to the number of shares owned and the stock price will not be standardized but instead is unique to fit the circumstances and terms of the corporate action. Of those listed, which is most likely to be such an action?

merger or acqusition

24
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Sierra Verde Coffee Company has 122 million shares of common stock outstanding. The last four weeks of trading volume are as follows: 1.2 million shares; 1 million shares; 1.1 million shares; and 900,000 shares. What is the volume limitation for an affiliate selling shares of the company over the next 90 days?

1.05 mill

The volume limitations under Rule 144 are the greater of 1% of the outstanding shares of the company or the average weekly trading volume over the most recent four weeks. In this example 1% of 122 million is 1.22 million. That is higher than any of the trade volumes of the last four weeks, much less the average of 1.05 million.

25
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In a proxy contest, which of the following must register with the Securities and Exchange Commission (SEC)?

  1. All persons participating in proxy solicitation

  2. All persons providing shareholders with unsolicited advice

26
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Your client holds ADRs of Daikon Motors, Inc., an automobile manufacturer based in Asia. All of these are true about the position except

they have the same voting rights as an owner of the common stock.

27
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BigCo separates a division (KNDA Big Company) and issues stock for the new division to holders of BigCo stock. What are the tax consequences of this corporate spinoff?

there is no taxable consequence

28
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An American depositary receipt is a

foreign security trading in U.S. markets.

29
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An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct?

I. The adjusted cost basis of the shares is $30.
II. The adjusted cost basis of the shares is $32.
III. There is a short-term capital gain on 25 shares and long-term gain on the other 25 shares.
IV. There is a long-term capital gain on all of the shares sold.

\

2 and 4

30
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Modulux, Inc., an NYSE listed manufacturer, is offering 5 million shares to the public, which will raise capital to build a new plant. The new technology and design should allow Modulux to increase market share significantly in the modular home business. This offer is

APO

31
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What is an APO

method for a private company to go public by merging with a public shell company and then raising capital through a PIPE

32
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Squidco, Inc., is issuing $100 million in 4 ½% bonds maturing in 20 years. When purchased at issue, the buyers will receive an additional security that allows them to purchase 20 shares of Squidco common stock at $50 per share, any time in the next 10 years. Squidco common is currently trading at $29.95 per share. This is an example of a

Warrant

33
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A company's board of directors has voted to divest itself of all shares of a subsidiary to create a new company. This is a type of corporate action best characterized as

spinoff

34
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Which of the following actions typically requires a shareholder vote?

he election of corporate directors



The election of directors to the board requires shareholder approval. The declaration of dividends, forward stock splits, and hiring senior executives are typically decisions made by the board of directors​. Note that a reverse stock split will generally require shareholder approval.

35
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Jones bought an American depositary receipt (ADR) in a South Korean company at $22.00 and recently sold the shares for $36.88. What are the tax consequences of this transaction?

The profit is taxed as a capital gain of $14.88 in the United States.

36
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Mary owns 8% of Doyle Inc., a publically traded publishing company. She has recently married John, a doctor who owns 3% of Doyle. John wants to sell some of his shares to pay off the debt from the wedding and honeymoon. When he does so he will need to

file Form 144 because he is a control person.

37
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RJN common stock is currently listed on the New York Stock Exchange. Poor operating results over the past several years have led to a sharp decline in RJN's stock price, putting the company at risk for failing to meet the minimum price requirements to remain listed on the NYSE. The corporate action most likely to be taken to preserve the listing would be

a reverse split

38
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Snowflake Resorts, Inc., has announced their intention to repurchase 5 million of the company's outstanding shares from the secondary markets. This is called a

buyback

39
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Which of the following best describes the main function of American Depositary Receipts (ADRs)?

]ADRs facilitate the trading of foreign securities in U.S. markets.

40
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On October 15 of last year, ABC Company declared a 3-for-1 reverse split. What are the tax consequences for this corporate action?

there is none

There are no tax consequences for a split, reverse or otherwise.

41
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An investor interested in quarterly income should invest in

a common stock paying a high dividend

42
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Equity is to debt as

Stock to a bond

43
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Which type of preferred stock must pay the current dividend plus any dividends in arrears before any dividends can be paid to common shareholders?

Cumulative Preferred Stock

44
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All of these dates are declared by the board of directors of a corporation except

The ex dividend date

45
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  1. Which dates are decided by the board of directors

  1. The payable date

  2. The record date

  3. The declaration stated

46
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Which of the following characteristics is most closely associated with preferred shares in terms of priority during a corporate liquidation?

Preferred shareholders are paid before common shareholders but after creditors

47
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Your customer, MJ, has a strong preference for investing in equity securities; however, she is hoping to increase the amount of current income her portfolio generates. Which of these is the least suitable for her?

Duratech common stock, an exciting new tech manufacturer

48
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Which of these securities would likely provide the greatest potential for capital appreciation?

A common stock

49
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  1. Which of the following is NOT a security?

Gold Bars

50
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All of the following statements regarding penny stocks are true except

penny stock rules apply to both solicited and unsolicited transactions.

51
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True Facts about Penny Stocks

  1. if an account holds penny stocks, broker-dealers must provide a monthly account statement to the customer.

  2. Established customers of the firm need not sign a suitability statement.

  3. the SEC rules require that prospects, before their initial transaction in a penny stock, be given a copy of a risk disclosure document.

52
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For this election cycle, Big Trucks, Inc., has three open board seats. Big Trucks operates under a cumulative voting system. Your customer owns 300 participating preferred shares of Big Trucks. He has

No voting rights

53
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​​Jon owns 100 shares of the Bayside Fishing Company. Bayside has 1 million shares outstanding and operates under a statutory voting system. At the next election for the board, there are two open seats. All of these are true except

Jon has control of 200 votes, which he can cast any way he likes among the two open seats.

  1. Which of the facts are true

    1. Jon has a right to freely transfer his shares.

    2. Jon owns 1/10,000 of the Bayside Fishing Company.

    3. Jon has control of 200 votes, and he can cast up to 100 of those votes for each open seat.

54
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Which of the following is NOT a characteristic of common stock?

  1. It is a fixed-income security

  2. True aspects 

    1. It represents ownership in a company

    2. It gives the holder the right to vote on company matters

    3. It may pay dividends

55
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What type of stock is characterized by being associated with a corporation that has a market capitalization between $2 billion and $10 billion?

Mid-cap stock

56
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Which classification of common stock refers to the shares that have been sold to investors and are currently held by them?

Outstanding stock