Finance and Investment: Impact of Corporate Actions on Shareholder Equity, Exams of Finance

Download Finance and Investment: Impact of Corporate Actions on Shareholder Equity and more Exams Finance in PDF only on Docsity! FINRA SIE EXAM 2024 WITH 100% ACCURATE SOLUTIONS If interest Rates fall the issuer will most likely call which bonds first? - correct answer✔✔ High Dividend Rate preferred issues trading at a premium What are some actions by a corporation will affect an individuals common shareholder's equity - correct answer✔✔ Conversion of convertible preferred stocks or bond Repurchase of common shares Issuance of additional common shares (Stock splits do not effect shareholders equity but it must be voted on because it effects Par Value) Benefits to a Convertible stock compared to a regular debenture - correct answer✔✔ Convertible stock will have a slightly lower yield than non-convertible however it will raise in value as the market price of common stock rises What traits do preferred stock and bonds have in common? How are they different? - correct answer✔✔ Can be callable by issuer, both have periodic payments. Both are senior securities to common stock. Neither have voting rights Preferred is paid dividends on a percentage of face value much like the yield of a bond. Preferred stock has no maturity date and can be held perpetually while bonds have a set maturity date. Payments to preferred stock are not mandatory unless a declared dividend has been issued to common stock Payments to bond holders are mandatory When are common dividends declared and paid? - correct answer✔✔ Quarterly for both A customer owns 256 shares of ABC common stock. ABC declares a rights offering, with the terms being that for every 15 rights a shareholder may purchase one additional share.at $24 a share. Any fractional rights may be rounded up to buy an additional share. How many shares may the customer buy with these right? - correct answer✔✔ A share holder can buy a maximum of 18 shares with these rights paying $432 for them. The 17.06 shares may be rounded up to 18. XXYZ ADR (American Depository Receipt) represents 10% of the value of an XXYZ ordinary share. The ordinary shares trade on the London Stock Exchange, where the current price is 400 British Pounds (BP). The current exchange rate for the British Pound against the US Dollar is $1.40. The ordinary share pays an annualized dividend of 12 BP. The XXYZ ADR is listed on the NYSE. If a customer places an order to buy $560,000 of the ADR on the customer will buy how many shares of the ADR? - correct answer✔✔ 10,000 Shares with $560.,000 Explanation 400 BP x $1.4 = 560 $560,000 / 560 BP/share = 10,000 Shares of XXYZ Preferred Stock market valuation is based primarily on what? Performance of stock? Inflation? Interest rates? - correct answer✔✔ Interest Rates is the correct answer, remember that preferred stock is much like a bond in that it has fixed payments and is considered fixed income. Long term market interest rate levels determine the valuation. Rights are? - correct answer✔✔ Exerciserable, Negotiable (can be traded), Giftable Dividends can be paid in the form of? - correct answer✔✔ Cash or products A corporation has issued 9%, $1,000 par convertible debenture which convert at $50. The common stock is currently trading at $60. If the bond and the common stock are trading at parity a customer purchasing 5M of the bonds will pay: - correct answer✔✔ Answer $6,000. The bonds are convertible at $50, based on a $1,000 par value therefore each bond convert into 20 shares at $50. If the common stock is trading at $60 the bond must be trading at $60 x 20 = $1,200 Since they are buying 5M that means that are paying 5 x $1,200 = $6,000 Issuance of which of the following municipal issues are NOT subject to statutory debt limits - correct answer✔✔ Special tax bonds Industrial Revenue Bonds Moral Obligation bonds COPS (General Obligation are subject to debt limits) A corporation has issued bonds at 8%. Three years later similar issues are being offered in the primary market at 7% which of the following statements will be true about the current yield and the nominal yield? - correct answer✔✔ The current yield will be lower than the nominal yield. The dollar price of the bond will be at a premium. Nominal (stated) = .08 Market price of bond = .08/.07 = 1,143 Current Yield = 80 / 1143 = .06999 New issues of Government debt are issued in what form? Fully registered Fully registered to principal Book entry Mega super registered to a bro - correct answer✔✔ Book entry All new corporate bonds are issued in what form? Fully registered Book entry Mega man entry Registered to principal - correct answer✔✔ Book entry zero coupon bond - correct answer✔✔ a bond that makes no coupon payments and is thus initially priced at a deep discount call premium - correct answer✔✔ The call premium is an amount over the face value of the security and is paid in the event that the security is redeemed before the scheduled maturity date. Put another way, the call premium is the difference between the call price of the bond and its stated par value. Who rates commercial paper? - correct answer✔✔ Moody's, Standard and Poor's, Fitch NOT BEST's BEST's DOESNT DO A THING Treasury notes and Bonds are registered in? A) Bearer securities B) Registered to interest only C) Registered to principal only D) Fully registered in book entry form - correct answer✔✔ D Government and Corporate are registered in book entry form Which statements are true regarding the relationship interest rates and preferred stock? - correct answer✔✔ When interest rates rise preferred stock prices will fall When interest rates fall the preferred stock prices will rise. They are inverse! Similar to Bonds At the time of "when and as if issued" trade the: I Amount of accrued interest due to the under writer is known II Amount of accrued interest due to the underwriters is not known III Settlement date is known IV Settlement date is not known - correct answer✔✔ II and IV Interest due is now known Settlement date is not known Which of the following are defined as investment companies under the Investment Company Act of 1940 - correct answer✔✔ 1) Management Company 2) Unit Investment Trust (These securities can only be filled at the current market price or higher - so they do guarantee a specific price or better) A municipality wishes to sell a bond issue that is NOT backed by taxing power. Which of the following bonds can be issued? I Revenue Bond II Industrial Revenue Bond III General obligation Bond IV Lease rental bond - correct answer✔✔ I , II, and IV Only General obligation bonds are required by taxing power. The rest are revenue backed Stockholder approval is needed if a corporation wishes to do which of the following? I Split it's stock 1 for 2 II Split its stock 2 for 1 III Repurchases shares for it's Treasury IV Issue convertible securities - correct answer✔✔ I II and IV Stock splits require a vote because they change the par value Issue of convertible securities Dividends can be paid out in which three ways - correct answer✔✔ Making cash distributions on stocks (cash) Product distribution Stock distributions of that company or another company No taxable credits may be authorized Which of the following is an ECN ( Electronic Communications Network) I INSTINET II Island III Archipelago IV Peninsula - correct answer✔✔ I II and III Are all ECN's Peninsula is not an ECN When do Mutual funds send financial statements to share holders? - correct answer✔✔ Semi-Annually Who backs Jumbo CD's and are they considered negotiable? Which market trades Jumbo CD's - correct answer✔✔ They are traded on the secondary market They are backed by the issuing financial institution They are considered negotiable Which of the following are taxable in a year? I Interest earned from investments II Cash Dividends from investments III Stock Dividends from investments IV Stock Splits on Common Stock - correct answer✔✔ I and II are considered taxable Stock dividends are not taxable because they are not paid in cash Stock splits are also not taxable What are three rights of a shareholder of common stock? - correct answer✔✔ Right to vote on members of the BOD Right to dividends Right to transfer shares Which of the following actions by a corporation will affect an individual common shareholder's equity? I Declaration of stock dividend or Stock split II Conversion of convertible preferred stock III Repurchase of common shares outstanding (Stock buy back IV Issuance of additional common shares - correct answer✔✔ II III and IV Will all effect an individual shareholders equity Stock splits and Stock dividends will not ABC Corp declares a 3:1 Stock split to shareholders of record on November 10th. The price of the stock will be reduced on the ex date by: - correct answer✔✔ The stock will be reduced on the ex date by 67% An Open ended fund have a NAV of $10/share. The minimum purchase price is? I $10 II $10 plus commission III The market price IV The market price plus commission - correct answer✔✔ I $10 If a fund distributes a capital gain to shareholders which statements are true I The capital gain is taxable if taken as a check II The capital gain is not taxable if taken as a check III The capital gain is taxable if it is auto reinvested IV The capital gain is not taxable if it is auto reinvested - correct answer✔✔ I and III The capital gain is taxable either way because it is distributed Which of the following are types of Oil and Gas direct participation programs? I Exploratory II Income III Balanced IV Combination - correct answer✔✔ I II and IV Balanced is not a DPP What benefits do oil drilling programs provide? - correct answer✔✔ Intangible drilling costs are 100% deductible in the year the drilling takes place These programs give an immediate deduction Which is most subject to reinvestment risk? I Zero Coupon Bonds II Low Coupon Bonds III Medium Coupon Bonds IV High Coupon Bonds - correct answer✔✔ IV High Coupon bonds are the most susceptible to reinvestment risk A customer places an to buy bonds. The order reads "Buy 5M ABC 9s M'35 @ 90 GTC" At which of the following will the price be executed I 89 II 90 III 91 IV 92 - correct answer✔✔ I and II The order is a Limit Buy so the purchase will only be initiated at or below 90 Treasury Receipts I Pay interest semi-annually II Pay interest at maturity III Are essentially zero coupon T-notes or T-Bonds IV Are essentially Zero Coupon T- Bills - correct answer✔✔ II and III They pay interest at maturity basically zero coupon T note or T Bonds Nominal Yield - correct answer✔✔ the interest rate, also known as the "coupon rate" which is named on the bond certificate Current Yield Formula - correct answer✔✔ Annual Interest / Current Market Price Nominal yield Formula - correct answer✔✔ Annual Interest / Par Value Sell stop = Stop loss to prevent further losses it becomes a market order and must fill Buy stop = protects short sellers it becomes a market order once triggered Think of stop as a bomb going off Limit = doesn't trigger if not tripped over. Which is true regarding warrants? I Are issues with an exercise price that is higher than the market value of the stock II Are issued with an exercise price that is lower than the market value of the stock III Warrants would be exercised when the stock market's price is below the warrant strike price IV Warrants would be exercised when the stock's market price is above the warrant strike price - correct answer✔✔ I and IV Warrants are issued with an exercise price that is higher than the market value of the stock They would be exercised when the value of the stock is above the warrant strike price Warrants vs Rights Which has time value Which has intrinsic - correct answer✔✔ Warrants have time value Rights have intrinsic value When would a moral obligation bond be issued? - correct answer✔✔ A moral obligation bond would only be issued in times of financial distress for the municipality that does not have enough taxing power or revenue generating ability to sell a revenue bond. Which of these Retirement plans are "Qualified"? I Roth IRA II SEP III 401k IV Traditional IRA - correct answer✔✔ Only III and IV are Qualified What does it mean to be a qualified Retirement plan in your own words? - correct answer✔✔ It means that contributions are tax-deferred and deductible. They are taxed when they are distributed.