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SIE > Ch. 3 > Flashcards

Ch. 3 Flashcards

1
Q

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

A

No more than 25% of its average daily trading volume over a 4 week period in one day

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2
Q

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

A

Warrants

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3
Q

Define control stock.

A

Stock that is owned by officers, directors or greater than 10% owners; also known as affiliated stock

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4
Q

T/F: Corporate shareholders have limited liability.

A

True. Shareholders can only lose their original investment in the company goes bankrupt

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5
Q

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

A

American Depository Receipts (ADRs)

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6
Q

T/F: convertible preferred stock is convertible into bonds

A

False; convertible securities are converted into common stock

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7
Q

What is the longest duration of a warrant?

A

Perpetual

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8
Q

T/F: A stockholder is able to vote for a director, but not an officer.

A

True

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9
Q

_____ stock is the amount of stock a corporation has already sold to investors.

A

Issued stock

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10
Q

T/F: warrants are generally attached to the delivery of another security

A

True

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11
Q

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

A

One BD per trading session

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12
Q

What is the benefit of buying convertible preferred stock?

A

In addition to receiving dividends, the investor has the opportunity to convert it into common stock

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13
Q

T/F: ADRs must be issued with cooperation from the foreign issuer?

A

False; ADRs issued without assistance are unsponsored

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14
Q

____ and ____ are generally bundled as single investment securities.

A

Warrants and bonds

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15
Q

T/F: If a BD holds a customer’s stock in street name, the BD may vote on behalf of the customer

A

False; can’t do so without permission

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16
Q

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

A

Only one BD per day

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17
Q

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

A

Statutory

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18
Q

T/F: In a bankruptcy, common stock is senior to preferred stock

A

False, preferred his higher in seniority than common stock

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19
Q

Name two advantages that preferred stock has over common stock.

A

Order of liquidation and dividends

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20
Q

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

A

Blue-chip

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21
Q

T/F: All owners have the right to vote

A

False, only common stockholders have the right to vote

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22
Q

T/F: Treasury stock has no voting rights and receives no dividends

A

True

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23
Q

_____ stock fluctuates with the business cycle

A

Cyclical

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24
Q

What type of stock may be entitled to extra dividends?

A

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

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25
Rights are a ____-term instrument allowing holders to buy additional shares at a discounted price
Short-term
26
Existing stockholders receive ____ right for every one share owned
One right for every one share
27
T/F: With the approval of the board, preferred dividends can be skipped in some years
True; unlike bonds, preferred dividends are not required to be paid each year
28
The ______ is responsible for overseeing a company and appointing its senior managers
Board of Directors
29
_____ stocks are issues of companies with sales and market shares that are expanding
Growth
30
T/F: A FINRA member firm must disclose whether it has the ability to influence the issuer of securities
True; it is referred to as a control relationship, which must be disclosed to investors
31
Warrants are a _____-term right to buy a stock at a preset price.
long-term
32
Under Rule 144, restricted stock must be held for ____ months before it can be sold
(6) months
33
_____ stocks are associated with companies that are resistant to recession
Defensive
34
Issuers/affiliates repurchasing their own shares may not buy the shares in the last ____ minutes of the trading day
30 minutes
35
What is a derivative?
A financial product that derives its value from an underlying asset
36
Describe cumulative preferred stock.
Stock that requires payment of any missing dividends before common stockholders are paid
37
The formula for finding conversion ratio on convertible preferred stock is: ____ divided by _____
Par divided by conversion price
38
T/F: Common stockholders have the right to vote for the payment of dividends
False; board of director determines right to issue dividends
39
Who are considered the owners of a corporation?
Common and preferred shareholders
40
T/F: Callable preferred shares allow an investor to buy shares of common stock at a fixed price
False, if the shares are callable, it allows the issuer to buy back the shares at a fixed price
41
What is a stock legend?
A notice on stock certificates stating that selling is restricted unless shares are SEC-registered or exempt
42
T/F: Common shareholders vote to authorize the issuance of additional shares
True
43
____ pay higher than average dividends
Utilities (income stock)
44
____ stock is stock that was issued and repurchased by the issuing corporation
Treasury
45
What is restricted stock?
Unregistered stock that is typically bought through a private placement before shares are offered publicly
46
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
47
If attached to the issuance of a bond, may warrants be traded separately?
Yes, the two may be detached and traded separately
48
May a warrant be detached and traded separately?
Yes
49
What is the advantage existing stockholders receive through rights offerings?
Ability to maintain % ownership and buy additional shares at a discount
50
When warrants are attached to bonds, will issuers pay a higher or lower rate of interest?
Lower, due to the added opportunity
51
List two types of shares that may be sold under Rule 144.
1) Restricted (unregistered stock) | 2) Control stock
52
Equity holders are owners and are entitled to receive _____ which are derived from corporate _____
Dividends; profits
53
T/F: Both common and preferred shareholders are offered preemptive rights.
False, only offered to common shareholders
54
List some of the rights that shareholders receive.
Voting, dividends, etc
55
$ _____ is normally the par value for preferred stock
$100
56
Are ADR holders exposed to currency risk?
Yes, since these securities track the underlying stock
57
T/F: All employees of a corporation are control persons
False; control persons are directors, officers and shareholders with greater than 10% interest
58
Describe callable preferred stock
Preferred stock that an issuer can repurchase at a fixed price
59
What time limit exists for issuers/affiliates of actively-traded companies that are repurchasing their own security?
Can't purchase in last 10 minutes of trading day
60
T/F: Customers of a broker dealer can request to see the firm's balance sheet
True
61
How are voting issues determined, by shares or shareholders?
Based on the majority of shares
62
T/F: The lock-up provision lasts for 6 months
False; although typically 6 months, there is no regulation for a minimum
63
T/F: Issuers of unsponsored ADRs are subject to SEC reporting requirements
False; issuers of ADRs are exempt from the reporting requirements
64
Who is a lock up agreement meant to protect?
Shareholders/investors
65
____ stock is the amount of stock a corporation is legally permitted to be issued
Authorized
66
This voting method allows stockholders to multiply the number of shares owned by the number of directorships.
Cumulative voting
67
What is a lock-up period?
Length of time a pre-IPO shareholder must wait before selling his shares
68
A ____ period is a length of time during which shareholders and insiders are prohibited from selling their shares
Lock-up
69
Issued Stock - Treasury Stock = _________
Outstanding stock; common shares outstanding

SIE (20 decks)

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