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SIE > Ch. 3 > Flashcards

Ch. 3 Flashcards

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SIE Exam 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
Q

Rights are a ____-term instrument allowing holders to buy additional shares at a discounted price

A

Short-term

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26
Q

Existing stockholders receive ____ right for every one share owned

A

One right for every one share

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27
Q

T/F: With the approval of the board, preferred dividends can be skipped in some years

A

True; unlike bonds, preferred dividends are not required to be paid each year

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28
Q

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

A

Board of Directors

29
Q

_____ stocks are issues of companies with sales and market shares that are expanding

A

Growth

30
Q

T/F: A FINRA member firm must disclose whether it has the ability to influence the issuer of securities

A

True; it is referred to as a control relationship, which must be disclosed to investors

31
Q

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

A

long-term

32
Q

Under Rule 144, restricted stock must be held for ____ months before it can be sold

A

(6) months

33
Q

_____ stocks are associated with companies that are resistant to recession

A

Defensive

34
Q

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

A

30 minutes

35
Q

What is a derivative?

A

A financial product that derives its value from an underlying asset

36
Q

Describe cumulative preferred stock.

A

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

37
Q

The formula for finding conversion ratio on convertible preferred stock is: ____ divided by _____

A

Par divided by conversion price

38
Q

T/F: Common stockholders have the right to vote for the payment of dividends

A

False; board of director determines right to issue dividends

39
Q

Who are considered the owners of a corporation?

A

Common and preferred shareholders

40
Q

T/F: Callable preferred shares allow an investor to buy shares of common stock at a fixed price

A

False, if the shares are callable, it allows the issuer to buy back the shares at a fixed price

41
Q

What is a stock legend?

A

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

42
Q

T/F: Common shareholders vote to authorize the issuance of additional shares

A

True

43
Q

____ pay higher than average dividends

A

Utilities (income stock)

44
Q

____ stock is stock that was issued and repurchased by the issuing corporation

A

Treasury

45
Q

What is restricted stock?

A

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

46
Q

What is the purpose of a lock-up provision?

A

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

47
Q

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

A

Yes, the two may be detached and traded separately

48
Q

May a warrant be detached and traded separately?

A

Yes

49
Q

What is the advantage existing stockholders receive through rights offerings?

A

Ability to maintain % ownership and buy additional shares at a discount

50
Q

When warrants are attached to bonds, will issuers pay a higher or lower rate of interest?

A

Lower, due to the added opportunity

51
Q

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

A

1) Restricted (unregistered stock)

2) Control stock

52
Q

Equity holders are owners and are entitled to receive _____ which are derived from corporate _____

A

Dividends; profits

53
Q

T/F: Both common and preferred shareholders are offered preemptive rights.

A

False, only offered to common shareholders

54
Q

List some of the rights that shareholders receive.

A

Voting, dividends, etc

55
Q

$ _____ is normally the par value for preferred stock

A

$100

56
Q

Are ADR holders exposed to currency risk?

A

Yes, since these securities track the underlying stock

57
Q

T/F: All employees of a corporation are control persons

A

False; control persons are directors, officers and shareholders with greater than 10% interest

58
Q

Describe callable preferred stock

A

Preferred stock that an issuer can repurchase at a fixed price

59
Q

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

A

Can’t purchase in last 10 minutes of trading day

60
Q

T/F: Customers of a broker dealer can request to see the firm’s balance sheet

A

True

61
Q

How are voting issues determined, by shares or shareholders?

A

Based on the majority of shares

62
Q

T/F: The lock-up provision lasts for 6 months

A

False; although typically 6 months, there is no regulation for a minimum

63
Q

T/F: Issuers of unsponsored ADRs are subject to SEC reporting requirements

A

False; issuers of ADRs are exempt from the reporting requirements

64
Q

Who is a lock up agreement meant to protect?

A

Shareholders/investors

65
Q

____ stock is the amount of stock a corporation is legally permitted to be issued

A

Authorized

66
Q

This voting method allows stockholders to multiply the number of shares owned by the number of directorships.

A

Cumulative voting

67
Q

What is a lock-up period?

A

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

68
Q

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

A

Lock-up

69
Q

Issued Stock - Treasury Stock = _________

A

Outstanding stock; common shares outstanding

SIE (20 decks)

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