Which of the following preferred issues is likely to fluctuate most in value?
C
Explanation:
convertible preferred. Because of the conversion feature, convertibles are more closely linked to the
price of the common stock. In addition, since the dividend rate on convertible preferred is usually
lower than other preferred issues, the convertibles are more sensitive to interest rate fluctuations.
Which of the following rights does an ADR holder not have?
A
Explanation:
preemptive rights. Holders of ADRs do not have preemptive rights, although they have most other
rights of shareholders, including the right to vote for board members-even a mother-in-law
A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares
of common stock. If it already has six million shares outstanding at the time of the offering.
How many rights will the corporation distribute to its shareholders?
B
Explanation:
six million. One right for each outstanding share is distributed.
A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares
of common stock. If it already has six million shares outstanding at the time of the offering.
What is the subscription price per share?
D
Explanation:
$10. There are one million shares divided into the $10 million of new capital.
A corporation makes a rights offering to raise $10 million of new capital by issuing one million shares
of common stock. If it already has six million shares outstanding at the time of the offering.
What subscription ratio is the corporation establishing for each new share?
A
Explanation:
6 rights per share. Each share receives a right and there are six million shares receiving rights to one
million new shares. So six rights are required for one share.
Bubba owns stock with cumulative voting rights. There are five vacancies on a board and he owns
100 shares of stock. Bubba is entitled to cast the following votes:
C
Explanation:
500 votes. Under cumulative voting, the number of directors is multiplied by the number of shares
owned. The votes may be cast all for a single director or divided in any manner among the directors.
The definition of debentures is:
D
Explanation:
securities backed by the general credit of the issuers but no specific collateral. And in the case of
some issuers, that may be fairly worthless.
Convertible bonds have all of the following features except:
C
Explanation:
a normally higher yield than non-convertible bonds of the same issuer. Remember that the question
says “except” for this feature. Convertible bonds normally do NOT have a higher yield than non-
convertible bonds of the same issuer. Convertibles usually have a lower yield than non -convertible
sisters.
Although a corporation has no earnings in a particular year, it is obligated to pay interest on all its
outstanding debt except the following:
C
Explanation:
adjustment bonds. These bonds are also known as income bonds. Interest is paid only if there is
income.
Interest rates rise from 5.10% to 5.30%. For a prospective buyer of five $1,000 bonds, what is the
increase in interest payments as a result of the rise?
D
Explanation:
$10. Interest rates increased by 20 basis points. One basis point is 10 cents. So 20 basis points is $2.
But…since there are five bonds, that $2 x 5 = $10.
Common stocks for which of the following industries are most likely to decline in value when interest
rates rise?
D
Explanation:
public utility companies. Interest rates most affect the companies with the greatest amount of debt.
Public utility companies are highly leveraged. Hence, they most likely incur the largest effect of rising
interest rates.
Convertible preferred stock has all of the following characteristics except:
C
Explanation:
a requirement for shareholders to always accept the call price when called. All of the other
statements are true “except” this one. Convertible preferred shareholders have a n opportunity to
convert to common stock. There is no forced call price.
Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the
bond?
B
Explanation:
98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight
discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon
rate, the price is 100.00.
Bonds are most often quoted as a percentage of:
A
Explanation:
face value. The price is 100.00 if the yield is the same as the coupon rate. A price of less than 100.00
means the yield is higher than the coupon rate. A price of more than 100.00 means the yield is lower
than the coupon rate. The prices are a percentage of 100.00. However, treasury bonds and municipal
bonds are not quoted in this way.
Which of the following is a right for shareholders of common stock?
B
Explanation:
the right to vote about important matters of the company. Shareholders have no expectation of stock
price increase or dividends. They are entitled to receive dividends only if the board of directors
declares them.