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Series 7 > Unit 2 > Flashcards

Unit 2 Flashcards

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Series 7 Top-off Exam flashcards
1
Q

What are preemptive rights?

A

Existing stockholders are entitled to maintain their proportionate ownership in a company

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2
Q

Rights Offering

A

Allows stockholders to purchase common stock below the current market price

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3
Q

Subscription Right

A

A certificate representing the privilege to buy additional shares of a corporation

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4
Q

Ex-Date

A

The first day it is too late for investors to buy the stock and get their names on the company’s records

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5
Q

Compute the value of a right

A

market price - subscription price / number of rights to purchase one share + 1

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6
Q

When would you use MP-SP/N?

A

When the exam asks for the value of a right after the ex-date

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7
Q

When would you use MP-SP/N+1?

A

When the exam asks for the value of a right before the ex-date (cum/with rights)

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8
Q

What happens when a standby underwriter is engaged?

A

An issue is assured of selling all the shares being offered

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9
Q

What is a warrant?

A

A certificate grant its owner the right to purchase securities from the issuer at a SPECIFIED PRICE

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10
Q

Rank securities in order for income with relative safety:

Warrant
Convertible preferred
Cumulative preferred
Common stock

A

Cumulative
Convertible
Common
Warrant

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11
Q

American Depositary Receipt

A

A receipt for shares of a foreign stock deposited with a custodian

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12
Q

Which risk affects ADRs?

A

Currency Risk

Foreign dividends paid in local currency will be affected by the exchange rate

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13
Q

How does the custodian for ADRs receive dividends?

A

in the foreign currency

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14
Q

An ADR represents

A

a foreign security trading in the US

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15
Q

What is a 6% dividend on $100 par?

A

$6 per year

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16
Q

What does the Securities Act of 1933 regulate?

A

activity in the primary market

17
Q

What does the Securities Exchange Act of 1934 regulate?

A

Activity in the secondary market

18
Q

Exchange Market

A

composed of NYSE and other exchanges on which listed securities are traded

19
Q

Listed Security

A

A security that is bought and sold on an exchange

20
Q

Auction Market

A

Floor brokers compete to execute trades at favorable prices

21
Q

OTC Market

A

Interdealer network on which unlisted securities trade — not eligible for margin, thinly traded, no central marketplace

22
Q

Dark Pool

A

Private stock exchange; about 30% of trading volume in US stock market

23
Q

ECN

A

Electronic Communications Network

Electronic trading platform that automatically buys and sells orders at specified prices or better. Open 24 hours, 365 days to accommodate after hours limit order trading

24
Q

What happens to the tax rate of qualified dividends?

A

It is lower than that of nonqualifed dividends

25
Q

What rule regulates penny stocks?

A

Section 15(g)

26
Q

Risk Disclosure Document

A

Required before initial transaction in a penny stock; Rule 15g-2

27
Q

Disclosure of Quotations

A

Required to be provided to penny stock purchasers with current bid and ask to prevent quoting prices that are away from the current market; 15g-3

28
Q

Disclosure of Compensation

A

Rules 15g-4 and 15g-5; require members to provide penny stock purchasers with information on the compensation to be earned by member and RR; to avoid excessive markups

29
Q

Rule 15g-6

A

Requires monthly vs. quarterly statements for penny stock purchasers

30
Q

Rule 15g-9

A

Customer Suitability Determination; to curb abusive sales practices

31
Q

FINRA Rule 2121

A

Fair prices and commissions; 5% policy

NOT actually 5% just name of policy

Commissions should be fair

32
Q

The 5% policy applies to…

A

both principal (dealer) and agency (broker) transactions

applies to markups, markdowns, and commissions but not securities sold by prospectus

33
Q

What document is used to disclose pertinent information for a new issue?

A

Prospectus

34
Q

Dollar definition of penny stock

A

market price of less than $5

35
Q

5% policy applies to…

A

agency and principal nonexempt securities and transactions, both exchange and OTC

it does not apply to prospectus offerings (mutual funds and new issues)

36
Q

Which security carries the highest dividend rate?

A

Callable preferred

Callable allows the issue to call the securities away from the investor. From an investor‘s point of view, this is not an incentive. Therefore, callable preferred tends to pay higher rates.

37
Q

Holders of common shares may generally vote on…

A

… whether the company should issue additional preferred stock

38
Q

On a no-par preferred stock…

A

The dividend rate is stated in dollars

Series 7 (1 decks)

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