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Ch 1 (FINA-270)

Terms in this set (20)

In the term "broker-dealer", the word "broker" refers to:

A. Someone who makes a market in a security
B. Someone who carries an inventory of securities in their own accounts that is used to transact with the public
C. Someone who helps an investor buy or sell a security for a commission
D. Someone who provides investment advice for a flat fee
C. Someone who helps an investor buy or sell a security for a commission
Which of the following is true of dividends?

A. They are most often paid on a quarterly basis
B. They are always paid to common stockholders
C. They are paid out of a company's pre-tax earnings
D. They are always paid in cash
A. They are most often paid on a quarterly basis
What is the formula for market capitalization?

A. Stock price x number of shares outstanding
B. Total assets - total liabilities
C. Stock price x number of shares outstanding - cash
D. Total assets + total liabilities
A. Stock price x number of shares outstanding
You buy shares in a company on the secondary market. What have you done?

A. Paid the company for partial ownership of the company
B. Paid a third party for partial ownership of the company
C. Lent money to the company
D. Paid a third party in order to become a holder of the company's debt
B. Paid a third party for partial ownership of the company
In practical terms, the par value of __________ is meaningless.

A. Corporate Bonds
B. Preferred Stock
C. Government Bonds
D. Common Stock
D. Common Stock
The buyer of a ________ stock expects to earn income from a fixed, regular payment, rather than the chance to share in the company's financial gains.

A. Common
B. Preferred
C. Penny
D. Authorized
B. Preferred
Before a broker-dealer can sell a penny stock, SEC rules require the firm to:

A. Provide the customer with the penny stock company's last financial statement
B. Provide the customer with a document describing the risks of investing in penny stocks
C. Receive approval from FINRA for the sale
D. Mark the buy order with the notation "penny stock sale"
B. Provide the customer with a document describing the risks of investing in penny stocks
When is a company most likely to call callable preferred stock?

A. When interest rates are stable for more than five years
B. When interest rates go up
C. When interest rates go down
D. A company is never allowed to call callable preferred stock
B. When interest rates go up
What does a transfer agent do?

A. Repays bondholders when their bonds mature
B. Records who owns securities and in what form, and creates physical stock certificates when needed
C. Manages the process of issuing stocks or bonds, including marketing and selling them
D. Audits the recording of securities ownership and makes sure issued shares of stock do not exceed authorized shares
B. Records who owns securities and in what form, and creates physical stock certificates when needed
Gina owns a share of convertible preferred stock with a par value of $100 and a conversion price of $25. How many shares of common stock could she convert it into?

A. 1
B. 4
C. 25
D. 100
B. 4
Which of the following are advantages of owning common stock?
I. Limited Liability
II. Ease of transfer
III. Guaranteed dividends
IV. The ability to convert into preferred shares

A. III and IV
B. I and II
C. I and IV
D. II and III
B. I and II
Which of the following kinds of stock gets priority during bankruptcy and dividend payouts?

A. Priority stock
B. Preferred stock
C. Callable stock
D. Secured stock
B. Preferred stock
What is considered statutory voting?

A. Common stock shareholders can only vote up to the amount of shares they own for each board of directors seat
B. Common stock shareholders can use their total number of votes (number of shares owned times number of seats open) to vote for just one candidate even when there are multiple seats open
C. Common stock shareholders use a proxy to authorize their votes by absentee
D. Common stock shareholders refrain from voting
A. Common stock shareholders can only vote up to the amount of shares they own for each board of directors seat
The right that common stockholders have to buy shares of newly issued stock is called a:

A. voting right
B. statutory right
C. cumulative voting right
D. preemptive right
D. preemptive right
All of the following statements are true regarding common stocks EXCEPT:

A. Common stockholders can make a profit from the stock's capital appreciation and dividends
B. If a company goes out of business or liquidates, common stockholders are paid before bondholders
C. Common stocks may pay a dividend during profitable periods, but common stock holders are not guaranteed a dividend
D. Common stockholders may receive a right (or rights) for each share of stock they own, allowing them the opportunity to purchase new stock before more shares are sold to the public and maintain their current percentage of ownership in the company
B. If a company goes out of business or liquidates, common stockholders are paid before bondholders
Treasury stock is:

A. Stock issued by the US Treasury
B. Stock that is considered to be outstanding
C. Stock that a company buys back on the secondary market or stock that a company issued but never sold to the public
D. Stock that a company will never issue
C. Stock that a company buys back on the secondary market or stock that a company issued but never sold to the public
From an investor's point of view, what is the primary advantage of common stock over preferred stock?

A. Common stock shareholders have greater earnings potential
B. Common stock shareholders are paid dividends first
C. Common stock shareholders have prior claims to assets
D. Common stock shareholders have earnings that are more stable than preferred stock shareholders
A. Common stock shareholders have greater earnings potential
In 2014 Henry bought stock in ABC Corp.. Five year later, Henry received a notice from the company that it was calling back his shares of stock. What type of stock must Henry have bought in 2014?

A. Cumulative preferred stock
B. Common stock
C. Callable preferred stock
D. Convertible preferred stock
C. Callable preferred stock
Which of the following is a security?

A. fixed annuity
B. municipal bond
C. gold
D. commodity futures
B. municipal bond
A dealer buys or sells securities:

A. Only from or to other dealers
B. Only from or to brokers
C. Only for or from its own inventory
D. Only from or to issuers of securities
C. Only for or from its own inventory
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