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Series 7 > Chapter 5 > Flashcards

Chapter 5 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

____________ stock is stock that was issued and repurchased by the issuing corporation.

A

Treasury Stock

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2
Q

True or False: Treasury stock has no voting rights and receives no dividends.

A

True

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3
Q

Issued stock - Treasury stock = ____________________

A

Outstanding Stock

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4
Q

The _________ date is the date by which stock must be owned to receive the dividend.

A

record date

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5
Q

The ex-dividend date occurs ___ business days ________ the record date.

A

2 business days before

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6
Q

For the exam, name the three market holidays that could impact a trade’s settlement date.

A

January 1, July 4, and December 25

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7
Q

Who are considered the owners of a corporation?

A

Common and Preferred Stockholders

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8
Q

True or False: All owners have the right to vote.

A

False, Preferred stockholders do not

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9
Q

Name two issues on which common stockholders may vote.

A

Board of Directors, stock splits

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10
Q

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

A

statutory

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11
Q

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

A

Cumulative voting

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12
Q

True or False: Cumulative voting benefits smaller shareholders since they can concentrate votes for a specific director.

A

True

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13
Q

___________ stock fluctuates with the business cycle.

A

Cyclical (auto companies, cement)

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14
Q

_________ stock pays higher than average dividends.

A

Income

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15
Q

____________ stock is resistant to recession.

A

Defensive Stock (utility companies)

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16
Q

What instruments are used to facilitate trading of foreign securities in the U.S.?

A

ADR (American Depository Receipts)

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17
Q

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

A

long-term

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18
Q

True or False: Warrants are generally attached to the delivery of another security (stock or bond).

A

True

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19
Q

What is the longest duration for a warrant?

A

perpetual

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20
Q

May a warrant be detached and traded separately?

A

yes

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21
Q

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

A

short-term

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22
Q

What is the advantage existing stockholders receive through rights offerings?

A

The ability to maintain their percentage of ownership and buy additional shares at a discount.

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23
Q

Existing stockholders receive ______ right for every one share owned.

A

one

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24
Q

What is the method to calculate the number of shares that can be purchased through a rights offering?

A

of rights received ÷ # of rights needed to buy each additional share

25
Q

Name two priorities that preferred stock has over common stock.

A

Order of liquidation and dividends

26
Q

$______ is normally the par value for preferred stock.

A

$100

27
Q

Describe cumulative preferred stock.

A

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

28
Q

True or False: Convertible preferred stock may be converted into a bond.

A

False, converted into common stock

29
Q

The formula for finding conversion ratio on convertible preferred stock is: ______ ÷ ____________

A

The formula for finding conversion ratio is: Par ÷ Conversion Price (par for preferred is $100)

30
Q

What is a derivative?

A

A financial product that derives its value from the value of underlying assets such as stocks, bonds, or mortgages

31
Q

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

A

Lower, due to the added opportunity

32
Q

Cash dividends received by individuals are generally taxed at a maximum rate of ____%.

A

15%

33
Q

True or False: Corporations receiving dividends from other corporations qualify for the dividend exclusion rule.

A

True

34
Q

The corporate dividend exclusion rule applies to dividends paid on both ____________ and ____________ stock.

A

preferred and common

35
Q

A corporation with less than 20% ownership in a company paying dividends may exclude ____% of the dividend from taxes.

A

70%

36
Q

What is the tax consequence for an investor who receives a stock dividend?

A

none, just effects basis

37
Q

Does the receipt of a stock dividend create a taxable event?

A

no

38
Q

Joe owns 100 shares of MNO at $20 (total cost $2,000). If MNO declares a 10% stock dividend, what is Joe’s new basis?

A

$18.18/share

39
Q

If not designated by a client at the time of sale, what method will the IRS use to determine which shares were sold?

A

First in, first out

40
Q

A client selling shares would like to determine the specific shares being sold, he should use ________________________.

A

specific identification

41
Q

If an investor does not use Specific Identification when selling securities, the IRS assumes __________________.

A

First one’s bought are sold

42
Q

A sale for a loss would trigger the wash sale rule if the same security is repurchased within ____________________.

A

30 days

43
Q

According to the wash sale rule, what securities are considered substantially the same?

A

Same stock, rights, warrants, a bond or preferred stock convertible into the stock, or the purchase of a call option

44
Q

Joe sells XYZ and claims a 5-point loss, but triggers the wash sale by repurchasing XYZ at $40. Joe’s cost basis is:

A

45

45
Q

Ken covers a short position at a loss and re-shorts the same position within 30 days. Is the wash sale rule triggered?

A

yes

46
Q

In a bond swap (bond sold at a loss and another purchased), what features need to be changed to not trigger a wash sale?

A

Change the issuer, or the coupon, or the maturity

47
Q

True or False: A wash sale is triggered if the difference in a bond sold and then repurchased is accrued interest/price.

A

True

48
Q

Define the term basis.

A

price paid, including all costs

49
Q

If securities are inherited, a beneficiary’s holding period is automatically ____________.

A

long term

50
Q

Pete just inherited securities from his grandfather and is asking about his basis. What is the correct response to Pete?

A

His basis is the market value at the time of his grandfather’s death (stepped up basis).

51
Q

How is basis determined for the recipient of gifted securities?

A

Basis will be the donor’s cost or market value, whichever is lower.

52
Q

When securities are gifted, the recipient’s holding period will be _______________________.

A

same as donor’s

53
Q

True or False: Common stockholders have the right to vote for the payment of dividends.

A

False

54
Q

True or False: Both common and preferred stockholders are offered preemptive rights.

A

False, just common

55
Q

If a corporation executes a stock split, is there a resulting gain or loss for existing stockholders?

A

No

56
Q

ABC sets a record date of Wednesday, Oct. 19. Would a buyer of ABC on Monday, October 17 be entitled to the dividend?

A

No, 2 days before

57
Q

XYZ’s record date is Thursday, May 3. With a regular-way trade, when could Emma sell her stock, but keep the dividend?

A

May 1 or after

58
Q

What can a U.S. investor do when foreign taxes are paid on dividends received on foreign stocks?

A

deduct or credit on taxes

59
Q

A corporation with 20% or more ownership in a company paying dividends may exclude _____% of the dividend from taxes.

A

80%

Series 7 (25 decks)

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