3: EQUITY SECURITIES (197)

Question 1

does the par value increase/decrease on stock splits?

Answer 1

Yes

Question 2

Are mutual funds subject to the 5% markup policy?

Answer 2

No

securities that are sold by a prospectus are not subject to the 5% markup policy

Question 3

T/F: Excess capital losses can be carried foward to use against gains or income indefinitely

Answer 3

True

can only use $3k/year tho

Question 4

T/F: Preferred stock is considered fixed income

Answer 4

True

Question 5

Straight preferred stock

Answer 5

No past dividends like cumulative

Question 6

T/F: Preemptive rights allow stockholders to maintain their proportionate ownership when the corporation wants to issue more stock.

Answer 6

True

Question 7

Is the OTC market negotiated?

Answer 7

Yes

its a negotiated market

Question 8

Does the SEC regulate the OTC market?

Answer 8

Yes

Question 9

For formula for theoretical value of right after ex-date, does it have a 1 or no?

Answer 9

w/o 1

If after ex-date, formula has no 1

Question 10

If capital losses exceed capital gains, up to ____ make be deducted against taxable income

Answer 10

$3k

Question 11

How long to hold a security before you get long teerm capital gains tax treatment

Answer 11

Own for MORE than 12 months

Question 12

According to SEC Rule 15g-2, firms must wait at least ____ business days after sending the risk disclosure document to customer before executing first penny stock trade

Answer 12

2 business days

Question 13

T/F: SEC rules require that customers be given a copy of the risk disclosure document before their first transaction in a penny stock

Answer 13

True

Question 14

Are securities sold with a prospectus subject to the 5% markup policy?

Answer 14

No

Transactions in securities that are sold by a prospectus are not subject to the 5% markup policy.

Question 15

[Theoretical value of rights] If question asks for the value of a right before ex date, is formula with a 1 or without a 1?

Answer 15

With a 1

If before ex date, formula has a + 1

Question 16

Are dividends from ADRs declared in foreign currency or USD?

Answer 16

Foreign currency

Although paid in USD

Question 17

Share holder will always receive _____ right(s) for every share of common stock they own

Answer 17

1 right

Shareholders always get one right per share

Question 18

T/F: FINRA is the authorized SRO for the OTC market.

Answer 18

True

Question 19

Are stock dividends taxable in the year they are received, or when the shares are sold?

Answer 19

When the shares are sold

Question 20

Do ADRs fall under the oversight of the SEC?

Answer 20

Yes

Question 21

Is the exersise price of a warrant usually above or below CMV?

Answer 21

above cmv

Question 22

Are rights ever given to preferred stock holders?

Answer 22

No

Question 23

Secutities in the ___ market are not quoted on any U.S quotation system

Answer 23

Grey market

Question 24

Can markups exceed the 5% markup policy?

Answer 24

Yes

Five percent is a guideline, and markups can exceed it.

Question 25

3 things that are considered portfolio income

Answer 25

1) dividends
2) interest
3) net capital gains

Question 26

Does a stock split affect preferred stock?

Answer 26

No

preferred is never affected by a stock split

Question 27

Can straight debt securities be listed on NASDAQ?

Answer 27

No

Nasdaq for equity and equity equivalent (like convertible bonds) ony

Question 28

Preferred shareholders will always get ___ right(s) for every share they own

Answer 28

0

Preferred shareholders are never given rights

Question 29

Is there interest expense with stock?

Answer 29

No

Question 30

Is exersise price of stock right usually above/below CMV?

Answer 30

below CMW

Question 31

Which act regulates the extension of customers?

Answer 31

SEC of 1934

Question 32

Does FINRA regulate the OTC market?

Answer 32

Yes

Question 33

Does the 5% markup policy regulate prices, or commissions and markup?

Answer 33

Commissions and markup

Question 34

What tax rate are normal dividends taxed at?

Answer 34

icome tax rate

Question 35

What does SIPC do?

Answer 35

Protect customer assets if BD fails

Question 36

Wha rate are qualified dividends taxed at?

Answer 36

capital gains tax rate

which is lower than income tax on normal dividends

Question 37

T/F: All securities sold via prospective are subject to the 5% markup policy

Answer 37

False

No securities that are sold by prospectus are subject to the 5% markup policy

Question 38

Formula for outstanding shares

Answer 38

Issued shares - treasury shares (shares repurchased by corp)

Question 39

Formula for treasury shares (shares repurchased by company)

Answer 39

Issued shares - outstanding shares

Question 40

Formula for the current dividend yield

Answer 40

Annual dividend / current market value

Example: A stock trading at $42 pays a $2 annual dividend.
$2 / $42 = 4.76% dividend yield

(Remember to watch out if they give u quarterly, not annual dividend)

Question 41

Who determines the declaration date for a dividend

Answer 41

Board of directors

Question 42

Who determines the ex-dividend date (which is 1 business day before record date)

Answer 42

Determined by FINRA or SRO

This is the only date not determined by the company’s board of directors

Question 43

Who determines the record date (date trade must settle by for buyer to receive the dividend)

Answer 43

Board of directors

Question 44

Who determines the payable date (date dividend is distributed)

Answer 44

Bird of directors

Question 45

When are cash dividends taxable?

Answer 45

Taxable when received

Unlike stock dividends, which are taxable when the shares are sold

Question 46

When are stock dividends taxable?

Answer 46

When the shares are sold

Cash dividends are taxable when received

Question 47

Is the cost basis of the stock adjusted when a stock dividend is received?

Answer 47

Yes

Example: 100 shares @ $55 = $5,500
After 10% dividend, position becomes:
110 shares @ $50 = $5,500

Question 48

Is the cost basis of stock adjusted when a stock split occurs?

Answer 48

Yes

Example: 100 shares @ $30 = $3,000
After 2-for-1 split, position becomes:
200 shares @ $15 = $3,000

(Technically, it’s taxable when the shares are sold)

Question 49

Does preferred stock have a fixed par value?

Answer 49

Yes

Usually $100

Question 50

How are dividends for preferred stock stated?

Answer 50

They are a fixed rate stated as a percentage of par

Example: XYZ 3.5% preferred would pay a $3.50 annual dividend

(0.35 x $100 par value = $3.50 annual dividend)

Question 51

Participating preferred stock

Answer 51

Pays normal preferred dividend plus an additional dividend

The additional dividend ensures that the shareholders receive an equivalent dividend as common shareholders.

Question 52

Yield to maturity is another name for a bond’s ____

Answer 52

Basis

Question 53

T/F: “plain vanilla” describes preferred stock issues

Answer 53

True

Plain vanilla means there are no added features, just the fixed dividend.

Question 54

T/F: The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.

Answer 54

True

“The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.”