Chap 8: Common and Preferred Shares

Question 1

Shares are most often registered in ________ form, which means that they are registered in the name of the securities firm, rather than the beneficial owner

Answer 1

Street Certificate

Question 2

__________ offers computer-based systems to replace certificates as evidence of ownership in securities transactions.

Answer 2

Clearing and Depository Services (CDS)

Question 3

. A group of shares traded in less than a standard trading unit is called an ______

Answer 3

Odd Lot

Question 4

A _________ unit is a unit whose size has uniformly been decided upon by the exchanges

Answer 4

Standard Trading

Question 5

Dividend policy is determined by a company’s _______

Answer 5

Board of Directors

Question 6

all shareholders recorded as of this date are entitled to the declared dividend.

Answer 6

Dividend Record Date

Question 7

The last day a stock trades cum dividend is

Answer 7

the second business day before the dividend record date, also known as the day before the ex-dividend date

Question 8

In such a plan, the company diverts the shareholders’ dividends to the purchase of additional shares of the company

Answer 8

Dividend Reinvestment Plan

Question 9

Reinvested dividends ____ taxable to the shareholder as ordinary cash dividends, even though the dividends are not received as cash.

Answer 9

Are

Question 10

Participating shareholders acquire a regular, gradually increasing share position in the company at a reduced average cost per unit. This process is known as

Answer 10

Dollar Cost Averaging

Question 11

Some dividends are in the form of additional stock rater than cash. These so-called

Answer 11

Stock Dividends

Question 12

Usually, each common shareholder has ____ vote(s) for each share owned

Answer 12

One

Question 13

___________ (or special shares) give the shareholder the right to participate to an unlimited degree in the earnings of a company and in its assets on liquidation, but they do not carry full voting rights.

Answer 13

Restricted Shares

Question 14

The primary motive in using a stock split or reverse split is to make the company’s share price

Answer 14

affordable for investors

Question 15

With a stock split, the number of outstanding shares _________ as the company will issue more shares to the current shareholders

Answer 15

Increases

Question 16

After the stock split, the stock’s price will be

Answer 16

Reduced

Question 17

When the market price of a company’s shares is too low, a ____________ can be used to raise the price

Answer 17

reverse stock split

Question 18

With a reverse stock split, each shareholder’s total shareholdings in the company are _______accordingly.

Answer 18

reduced

Question 19

___________ shareholders are usually entitled to a fixed dividend payment, subject to the discretion of the board of directors

Answer 19

Preferred

Question 20

___________ have priority status over common shares in the event of bankruptcy or dissolution of the company

Answer 20

Preferred Shareholders

Question 21

If the rank of various outstanding preferred share issues is equal, as to asset and dividend entitlement, the shares are described as ranking _______

Answer 21

Pari Passu

Question 22

Because most preferreds can be considered ___________, they do not offer the same potential for capital appreciation that common shares provide for investors

Answer 22

Fixed income securities

Question 23

Should interest rates decline, the preferreds would ______ in price, much like a bond

Answer 23

Increase

Question 24

The __________ rate is of prime importance to the preferred shareholder.

Answer 24

dividend

Question 25

________offer the advantage of avoiding the dilution of equity that results from a new issue of common shares.

Answer 25

Preferred shares

Question 26

If a company’s board of directors votes not to pay one or more preferred dividends when due, the unpaid dividends accumulate in what is known as ____

Answer 26

Arrears

Question 27

Explain the Cumulative Feature of preferred shares

Answer 27

Most common form of preferred shares.
If a company’s board of directors votes not to pay one or more preferred dividends when due, the unpaid dividends accumulate in what is known as arrears. All arrears of cumulative preferred dividends must be paid before common dividends are paid or before the preferreds are redeemed

Question 28

Explain the Non-Cumulative Feature of Preferreds

Answer 28

On non-cumulative preferreds, the shareholder is entitled to payment of a specified dividend in any year, only when declared. Arrears do not accrue, and the preferred shareholder is not entitled to catch-up payments if dividends resume. For this reason, the dividend position of non-cumulative preferred shares is weak.

Question 29

_______ shares can be called or redeemed by the issuer at a stated time and stated price

Answer 29

Callable Preferred

Question 30

_________ cannot be called or redeemed as long as the issuing company is in existence. From the issuer’s standpoint, this feature is restrictive because it freezes a part of the capital structure for the life of the company. Therefore, it is rarely used.

Answer 30

Non-Callable Preferred

Question 31

Explain the Voting Privileges of Preferred Shares

Answer 31

Virtually all preferreds are non-voting, as long as preferred dividends are paid of schedule. However, after a stated number of preferred dividends have been omitted, it is common practice to assign voting privileges to the preferreds.

Question 32

A __________ is advantageous to preferred shareholder. If the price of shares declines in the market to, or below, a stipulated price, the fund will make every effort to buy specified amounts of the security for redemption.

Answer 32

Purchase Fund

Question 33

A _________ often attempts to retire shares in the open market when the shares trade at or below a stipulated price, much like a purchase fund. If the shares cannot be purchased in the open market, the issuer is required to call or redeem the securities from investors to ensure that the stipulated amount of securities is retired each year.

Answer 33

Sinking Fund

Question 34

__________ are preferred shares with normal preferences as to asset and dividend entitlement ahead of the common shares, and with no other additional features. They pay a fixed dividend for as long as they remain outstanding, and the shares trade in the market on a yield basis.

Answer 34

Straight Preferreds

Question 35

Preferred Shares are ______ marketable than common shares.

Answer 35

Less

Question 36

______________ enable the holder to convert the preferreds into some other class of shares (usually common) at a predetermined price and for a stated period of time

Answer 36

Convertible Preferred Shares

Question 37

A _________ shareholder can force the company to buy back retractable preferreds for cash on a specified date, at a specified price.

Answer 37

Retractable Preferred

Question 38

The term _____________ refers to those retractables where the redemption value may be paid in cash or in common shares, generally at the election of the issuer.

Answer 38

Soft Retractable Preferreds

Question 39

______________ shares pay dividends in amounts that fluctuate to reflect changes in interest rates. If interest rates rise, so will dividend payments, and vice versa

Answer 39

Floating-rate preferred

Question 40

Some preferred shares may have delayed floating-rate features. Known as __________ ,fixed-reset, or fixed floaters, these share entitle the holder to a fixed dividend for a predetermined period, after which he dividend becomes variable.

Answer 40

Delayed Floaters

Question 41

Most Canadian preferred shares pay dividends in Canadian funds. However, it is possible for a company to create and issue preferreds with dividends and certain other features payable in, or related to, foreign funds. These products are know as __________ shares.

Answer 41

Foreign-pay preferred

Question 42

There is additional risk in the form of foreign currency risk. If the foreign currency increases in value compared to the Canadian dollar, the dividend will _______ in value.

Answer 42

Increase

Question 43

___________are shares that have certain rights to a share in the earnings of the company over and above their specified dividend rate.

Answer 43

Participating Preferreds

Question 44

___________ are shares that do not pay out a regular dividend; instead, the shares mature at a pre-set future date

Answer 44

Deferred Preferreds

Question 45

Preferred shares do not usually have a _______ date.

Answer 45

Maturity

Question 46

The _____ refers to common shares issued to the public that are available for trading by investors, and excludes those shares held by company officers, directors, or investors who hold a controlling interest in the company.

Answer 46

Float

Question 47

In contrast to a market-weighted stock index, stocks included in an ________ are composed of equally weighted items

Answer 47

average

Question 48

The _________ include the 60 largest companies that trade on the TSX measured by Market Cap and is broken down into ____ sectors.

Answer 48

S&P/TSX 60 index,

11

Question 49

The _______ is a leading exchange for small cap companies

Answer 49

NYSE MKT Composite

Question 50

The __________ index is a market-weighted index of more than 3000 stocks that are traded over the counter. This index is dominated by smaller cap companies. Its market cap is about 30% of the NYSE market cap

Answer 50

NASDAQ

Question 51

__________ give the holder the right to participate to an unlimited degree in the earnings of a company and in its assets on liquidation, but do not give the holder full voting rights.

Answer 51

Restricted Shares

Question 52

_________voting shares carry a right to vote if another class of shares is outstanding and those shares carry a greater voting right on a per share basis.

Answer 52

Subordinate

Question 53

________________ is a market cap index that includes all the listed common equities on the NYSE. There are additional indices for industrial, transportation, utility, and financial corporations.

Answer 53

The NYSE Composite Index

Question 54

____________is a composite index of about 1600 stocks that is calculated by taking an average of the daily percentage change in each stock within the index. This equal-weighted index was created by Wilshire Associates and is the broadest available barometer of all U.S. indexes, and includes companies that are listed on the NYSE, NASDAQ, NYSE MKT, and the TSX.

Answer 54

The Value Line Composite Index

Question 55

The Nikkei Stock exchange

Answer 55

Tokyo Stock Exchange Average

Question 56

The FTSE 1000 Index

Answer 56

This index consists of the 100 largest listed companies on the London Stock Exchange and is one of the most widely followed indexes in the U.K

Question 57

The DAX Performance Index

Answer 57

The DAX consists of 30 Major Frankfurt Stock Exchange blue-chip stocks and is the most widely followed index on the German securities market.

Question 58

The CAC 40 Index

Answer 58

The CAC 40 index is based on 40 of the largest 100 companies listed on the Paris Stock Exchange