Preferred Stock

Question 1

Which statement is TRUE regarding preferred stock payments?
A. Preferred dividends are usually higher than those paid to common
B Preferred dividends tend to grow over time
C. Preferred dividends are paid quarterly
D. Preferred interest is paid semi-annually

Answer 1

A. Preferred dividends are usually higher than those paid to common

Question 2

ABC gold mining company has issued a preferred stock. Dividends on the issue may be paid as:

Answer 2

Cash only

Question 3

Dividends on preferred stock may be paid in:

Answer 3

Cash

Question 4

A customer buys 100 shares of preferred at $51 per share. The par value is $50. The dividend rate is 8%. Each dividend payment would be:
A. $200
B. $400
C. $600
D. $800

Answer 4

A. $200

Question 5

A customer buys 100 shares of preferred at $101 per share. The par value is $100. The dividend rate is 8%. Each dividend payment will be:

Answer 5

$400

Question 6

As interest rates fall, preferred stock prices will:

Answer 6

Rise

Question 7

ABC 8% $100 par preferred is trading at $120 in the market. The current yield is:

Answer 7

6.7%

Question 8

XYZ Company has issued 10%, $100 par non-cumulative preferred stock. Two years ago, XYZ omitted its preferred dividend. Last year, it paid a preferred dividend of $5 per share. This year, XYZ wishes to pay a common dividend. In order to make the distribution to common shareholders, each preferred share must be paid a dividend of:

Answer 8

$10

Question 9

Which security of the same issuer is likely to give the highest current yield?
A. warrant
B. common stock
C. convertible preferred stock
D. non-convertible preferred stock

Answer 9

D. non-convertible preferred stock

Question 10

A customer holds 100 shares of ABC Corp $100 par convertible preferred stock convertible at a 10 to 1 ratio. If ABC declares and pays a 10% stock dividend, then as of the payable date, the customer will now have:
A. 90 shares of ABC preferred stock
B. 100 shares of ABC preferred stock
C. 100 shares of ABC preferred stock and 10 shares of ABC common stock
D. 110 shares of ABC preferred stock

Answer 10

B. 100 shares of ABC preferred stock

Question 11

Which statement is TRUE when comparing convertible preferred stock and non-convertible preferred stock?

A. Convertible preferred stock will have a higher yield than non-convertible preferred stock
B. Convertible preferred stock will have the same yield as non-convertible preferred stock from a given issuer
C. Convertible preferred stockholders benefit as the market price of the common stock rises
D. Convertible preferred stockholders benefit as the market price of the common stock falls

Answer 11

C. Convertible preferred stockholders benefit as the market price of the common stock rises

Question 12

Callable preferred stock is likely to be redeemed by the issuer if:

Answer 12

interest rates fall

Question 13

Which statement is BEST regarding participating preferred stock?

A. The dividend rate is fixed
B. The dividend rate varies depending on the decision of the Board of Directors
C. The dividend rate is fixed as to maximum but not as to minimum
D. The dividend rate is fixed as to minimum but not as to maximum

Answer 13

D. The dividend rate is fixed as to minimum but not as to maximum

Question 14

All of the following are types of preferred stock EXCEPT?

A. Performance
B. Participating
C. Cumulative
D. Refundable

Answer 14

D. Refundable

Question 15

During periods of stable interest rates, which type of preferred stock will have the greatest price volatility?

A. Cumulative
B. Participating
C. Callable
D. Adjustable Rate

Answer 15

B. Participating

Question 16

A middle-aged widowed customer has an investment objective of stable income and would also like to receive occasional “extra” income to help pay unexpected bills. What type of preferred stock would be the best recommendation?

Answer 16

Participating Preferred