RN Domain 6: Physiological Adaptation (Quiz 2) Welcome to your Series 7 Practice Exam 2 This test is designed to prepare you mentally for the actual Series 7 Exam with the same number of (125 questions) and the same time allowed (225 minutes) as the actual exam. The Series 7 Exam is breakdown into four (4) Parts. Here are the Four (4) Domains of the Series 7 Exam with the weightage and number of questions in this practice exam: 1. Seeks Business for the Broker Dealer from Customers and Potential Customers [09 Questions] - 07% 2. Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives [11 Questions] - 09% 3. Provides Customers with Information about Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Records [91 Questions] - 73% 4. Obtains and Verifies Customers’ Purchase and Sales Instructions and Agreements; Processes, Completes, and Confirms Transactions [14 Questions] - 11% Please click NEXT to start your Free Series 7 PRACTICE EXAM right away. Best of Luck! 1. The FINRA rule on communications would consider communications that are posted on an online interactive electronic forum (i.e., a chat room) to be A) institutional communications. B) a public appearance. C) retail communications. D) correspondence. None 2. Which of the following statements is true? A) Institutional communications material always requires prior principal approval. B) All retail communications require submission to the FINRA Department of Advertising. C) Institutional communications do not require prior principal review if associated persons receive training in the firm's procedures governing institutional communications. D) All retail communications require prior principal approval. None 3. Which of the following would not be considered institutional communications with the public? A) An internal memo promoting a new product that will be offered to your firm's institutional customers only B) A communication with an individual designated to act on behalf of your institutional customer C) A letter to a municipality offering your firm's services as an underwriter D) A letter to another broker-dealer None 4. All of the following would be considered either retail communications or correspondence except A) an email to several municipalities sent out in a single day offering your firm's services for underwriting their municipal securities. B) a written communication to all of the firm's customers regarding a new mutual fund being offered. C) a letter to 10 individual investors within the past week regarding a new investment strategy. D) an electronic communication distributed through the firm's website regarding potential opportunities with the firm as a registered representative. None 5. All of the following are unlawful except A) selling new issues on margin. B) giving written notification to a customer that the broker-dealer is acting as a principal for the trade. C) representing that the SEC has approved of a broker-dealer or a security being sold. D) omitting a statement of a material fact. None 6. Which of the following do not represent communications with the public? A) Research reports B) Market letters C) Billboards D) Internal memos None 7. A registered representative reproduced a research report prepared by an independent research analyst on his broker-dealer's letterhead, with no mention of the party who prepared the report. If this literature is forwarded to a select group of clients only, the registered representative's action is A) allowed with the written approval of a principal of the broker-dealer. B) allowed only if the research report has been filed with FINRA. C) allowed. D) not allowed. None 8. A FINRA member firm sends a promotional piece to 35 individuals over a three-day period. Twenty of these individuals are current customers of the firm. The other 15 are prospects whose names came from a commercially available mailing list service. Under the FINRA rule on communications with the public, this promotional piece would be considered A) correspondence to the existing customers, retail communication to the prospects. B) direct mail. C) retail communication. D) correspondence. None 9. Communications with the public include all of the following except A) informational material on a new mutual fund intended for sales personnel. B) institutional sales material. C) television appearances by an officer of the firm. D) independently prepared reprints forwarded to your firm's customers. None 10. In an account opened by two individuals as joint tenants with right of survivorship (JTWROS), all of the following statements are true except A) stock certificates may be delivered in the name of either party. B) in the event of death, the other party assumes full ownership of the account. C) orders may be entered by either party. D) mail may be directed to the joint owner agreed upon by both parties to the account. None 11. All of the following people could open a joint account except A) a married couple. B) a mother and 22-year-old daughter. C) a father and 10-year-old son. D) two business partners. None 12. All of the following characteristics describe a joint tenants with right of survivorship (JTWROS) account except A) in the event of the death of one of the tenants, the surviving party assumes control of the entire account. B) orders may be given only by the party listed first on the account. C) mail may be sent to either party with the permission of the other party. D) checks must be made out in the name of the account. None 13. Which of the following individuals may not open a joint account? A) Two spouses B) Two business partners C) Three sisters D) A parent and a minor None 14. Which of the following accounts allow ownership of real estate? A) An UTMA account B) A cash account C) A margin account D) An UGMA account None 15. Many parents find that opening an UTMA account for their child is not only a good way to accumulate funds for the future but also a good way for the child to gain an appreciation for investing. The account custodian may use principal as well as income generated in the account to pay for all of the following for the child except A) private school. B) the latest model smartphone. C) new clothes. D) summer camp. None 16. A customer and her spouse own shares in the ABC Fund as joint tenants with right of survivorship (JTWROS). If the customer dies, what happens to the shares in the account? A) The spouse would own all the shares. B) Ownership of the shares must be determined by probate court. C) The account would be frozen until the estate was settled. D) Half of the shares would belong to the spouse, and the remaining half would be distributed to the customer's estate. None 17. Services offered by prime brokers include all of the following except A) complying with FINRA’s advertising rules. B) supplying clearing services. C) processing transactions. D) providing back office support. None 18. What type of account allows for the irrevocable transfer of almost any kind of asset, including works of art and real estate, for the benefit of a minor? A) UGMA B) Coverdell ESA C) UTMA D) Tenants in common None 19. The Customer Identification Program requires that a tax identification number must be obtained when opening a new account. When the account is an UTMA, the Social Security number used is that of A) the minor who is the beneficiary of the account. B) either the custodian, a parent or guardian, or the minor. C) the appointed custodian. D) a parent or guardian of the minor. None 20. Which of the following persons must sign a stock or bond power to effect good delivery of securities sold from an account set up under the Uniform Transfer to Minors Act? A) Parent B) Custodian C) Donor D) Minor None 21. For a client to get immediate execution on an order, it should be placed as which of the following? A) All-or-none B) Market C) Good-til-canceled D) Stop None 22. A customer sold 100 shares of QRS short when the stock was trading at 19. If QRS is now trading at $14, and she wants to protect her gain, which of the following orders should she place? A) Sell limit at 14 B) Buy limit at 14 C) Sell stop at 13.75 D) Buy stop at 14.25 None 23. All of the following orders could be placed on the designated market maker's order display book except A) stop orders. B) market orders. C) limit orders. D) stop limit orders. None 24. KLP common stock has been trading at or near $25 per share all day. Your client would like to buy 500 shares of KLP at 25, but he is willing to accept fewer shares at that price. Which of the following orders fulfills his intentions? A) Market order to buy 500 shares of KLP B) Limit order to buy 500 shares of KLP at 25 IOC (immediate-or-cancel) C) Limit order to buy 500 shares of KLP at 25 FOK (fill-or-kill) D) Limit order to buy 500 shares of KLP at 25 AON (all-or-none) None 25. Last week one of your customers placed a good-til-canceled order to sell 200 shares of ABC with an 18 stop when the stock was trading at $18.85. It is now the ex-date for a $0.55 dividend and the order has not yet been executed. What has happened to your customer's stop order? A) It is increased to $18.55. B) It is reduced to $17.45. C) It is canceled. D) It remains at $18. None 26. Under NYSE rules, a not-held order A) requires discretionary authority from the customer. B) is good for the day only. C) is good til canceled. D) is a limit order. None 27. Earlier in the day, you entered a customer order to buy 300 XYZ at 26.45 good til canceled (GTC). By late afternoon, you notice that XYZ is trading at your customer's limit price. At the close of trading, you contact the order desk and get a Nothing Done report because A) the order was canceled at the close of trading. B) of the small size of the order. C) of the normal time delay between execution and execution reports. D) of stock ahead. None 28. You receive a not-held order from a customer who wants you to buy 1,000 shares of ABC when the price is right. Under NYSE rules, this order is A) a good-til-canceled order. B) a day order. C) a limit order. D) a fill-or-kill order. None 29. One of your clients has a profit in STV common stock. The purchase price was $40 per share and is now $60 per share. The client is looking to take the profit and feels the stock still has a bit more growth. The client's strategy is to enter a sell limit order at $62. It is critical that the client understand that A) if the stock never reaches $62, the order will never be executed. B) entering this order erases the holding period of the stock. C) the order becomes a market order when the price of $62 is reached. D) the sell limit order should be entered below the current market price. None 30. An order designated fill-or-kill (FOK) means that the order must be executed A) at the opening of trading. B) immediately but not necessarily entirely. C) in its entirety but not immediately. D) immediately and in its entirety. None 31. All open orders must be confirmed to the order book A) once a year on the anniversary of the order. B) the last business days of April and October. C) April 1 and October 1. D) every six months after the order has been entered. None 32. On the morning of the ex-date for a cash dividend, which of the following orders on the order book will not be reduced? A) Buy limit B) Sell stop limit C) Sell limit D) Sell stop None 33. A significant increase in which of the following types of orders may cause a bull market to accelerate? A) Buy stops B) Short sales C) Sell stops D) Buy limits None 34. Which of the following orders on the order book will not be filled if the stock rises? A) Buy stops B) Sell stop C) Sell limit D) Buy stop limit None 35. ABC Corporation offers statutory voting. At the upcoming annual meeting, it is announced that six people are running for the four available open seats on the board. An investor with 100 shares would be able to cast A) 600 votes on one of the individuals. B) 400 votes on one of the individuals. C) 100 votes for each of four individuals. D) 100 votes for each of six individuals. None 36. An investor owns 400 shares of ABC common stock. ABC's board of directors has declared a 5:4 stock split. As a result, the investor will receive how many additional shares? A) 80 shares B) 100 shares C) 40 shares D) 500 shares None 37. Which of the following is true regarding a 5-for-4 stock split? A) Each shareholder's proportionate equity will be unchanged. B) The par value will be unchanged. C) Retained earnings will be increased. D) The net worth of the company will be reduced. None 38. One of your clients owns 300 shares of common stock in a publicly traded corporation. The acquisition cost of those shares was $60,000 and the last trade of the stock was $220 per share. There was a news report that the company was going to pay shareholders a 100% stock dividend. The client wants to know how this dividend will affect the holding. You would respond that the customer will A) now own 150 shares and the market price will be approximately $440 per share. B) now own 600 shares and the market price will be approximately $220 per share. C) now own 600 shares and the market price will be approximately $110 per share. D) still own 300 shares and the market price will be approximately $440 per share. None 39. Holders of common shares may generally vote on A) which member of the board of directors should be chairman. B) whether a cash dividend is to be declared. C) whether the company should issue additional preferred stock. D) whether an administrative assistant should be promoted to management. None 40. Issued and outstanding stock is the authorized stock of a corporation that has been purchased by investors. The remaining authorized but unissued stock may be used for all of the following except A) sending to the IRS for payment of federal income taxes. B) paying stock dividends to stockholders. C) raising capital at a later date. D) exchanging stock with stockholders in a conversion. None 41. Five years ago, a corporation issued a portion of its authorized shares. Those shares currently trade on the New York Stock Exchange. In an effort to reduce the number of shares outstanding, the issuer purchases 30 million shares from existing shareholders. The shares purchased by the issuer in the secondary market are now known as A) treasury stock. B) unissued stock. C) authorized stock. D) issued stock. None 42. ZYX Corporation has 100 million shares of common stock authorized in its charter, with 80 million shares outstanding. The board of directors of ZYX could vote to take which of the following actions? A) Announce an additional public offering of 40 million shares of common stock B) Declare a stock dividend of 10% C) Issue 20 million shares of a 4%, $100 par preferred stock, convertible at $50 D) Declare a 2:1 stock split None 43. ABC, Inc., has 1 million shares of common stock outstanding ($10 par value), paid-in surplus of $10 million, and retained earnings of $20 million. If ABC stock is trading at $20 per share, what would be the effect of a 2-for-1 stock split? A) The retained earnings would be decreased by $10 million B) The number of shares outstanding would decrease by 50%. C) The par value would decrease to $5 per share. D) The market price of the stock would double. None 44. In a 3-for-2 stock split, an investor will A) have two-thirds fewer shares at a 50% higher price. B) have 50% more shares at two-thirds the price. C) have 50% more shares at half the price. D) have 50% fewer shares at twice the price. None 45. Your client owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own? A) 125 shares at $20 B) 100 shares at $31.25 C) 100 shares at $25 D) 125 shares at $18.75 None 46. ABC has 1 million shares of common stock outstanding. Mr. Chen owns 100,000 shares of ABC common stock. If ABC issues an additional 500,000 shares, and assuming ABC's charter calls for preemptive rights, Chen will receive enough rights to purchase A) 15,000 additional shares. B) 20,000 additional shares. C) 10,000 additional shares. D) 50,000 additional shares. None 47. When compared to statutory voting, cumulative voting gives an advantage to A) management rather than the board of directors. B) minority stockholders. C) majority stockholders. D) participating preferred stockholders. None 48. A corporation must have stockholder approval to A) declare a cash dividend. B) issue convertible bonds. C) declare a 15% stock dividend. D) repurchase 100,000 shares of stock for its Treasury. None 49. JDX Corporation's charter has authorized 10,000,000 shares of common stock. It has issued 5,000,000 shares and has 1,000,000 shares in its treasury. JDX decides to use all of the treasury stock to pay a dividend to shareholders. As a result, the number of outstanding shares is A) 5,000,000. B) 4,000,000. C) 6,000,000. D) 10,000,000. None 50. When reading a corporation's annual report, a registered representative notices that there are 100 million shares authorized, 70 million shares outstanding, and 10 million shares in the treasury. Based on this information, the representative would deduce the number of unissued shares is A) 80 million. B) 30 million. C) 20 million. D) 10 million. None 51. Lambda Corporation has received a donation of 100,000 shares of its common stock from the spouse of the deceased founder of the company. This would appear on the company's books as A) treasury stock. B) unissued stock. C) authorized, but unissued stock. D) reacquired stock. None 52. A share of common stock in the hands of a stockholder carries with it certain rights. Among those rights is A) entitlement to receive profits through dividends when distributed but not the right to vote for who will serve on the board of directors. B) entitlement to receive profits through dividends when distributed and the right to vote for the amount of that dividend. C) a claim on the assets of the corporation second only to that of the company's secured creditors. D) entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the board of directors. None 53. ADJ Corporation's charter has authorized 10,000,000 shares of common stock. It has issued 5,000,000 shares and has 1,000,000 shares in its treasury. How many shares of common stock are currently outstanding? A) 5,000,000 shares B) 4,000,000 shares C) 6,000,000 shares D) 9,000,000 shares None 54. JEG Corporation common stock is currently trading at $25 per share. The par value of JEG stock A) has nothing to do with the current market value of the stock. B) is most likely $25 per share. C) is most likely less than $25 per share. D) is most likely more than $25 per share. None 55. If a company splits its stock 3 for 2, how many additional shares will be issued to an investor who owns 200 shares? A) 300 B) 400 C) 100 D) 500 None 56. After a company splits its stock 2 for 1, an investor who owns 100 shares receives A) notice to send in the current certificate to be replaced by a new certificate for 200 shares. B) notice that the investor's 100-share certificate now represents 200 shares. C) another certificate for 200 shares. D) another certificate for 100 shares. None 57. A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has A) greater exposure. B) a proportionately decreased interest in the company. C) a proportionately increased interest in the company. D) no effective change in the value of the position. None 58. An investor purchased 100 shares of ABC common stock valued at $6,000. What is the adjusted cost basis per share of this position after the company pays a 20% stock dividend? A) $48.00 B) $60.00 C) $72.00 D) $50.00 None 59. By regular or statutory voting procedures, a shareholder with 100 shares would be able to vote to fill seats for six directors in which of the following ways? A) 600 votes for any one director, no votes for the others B) 100 votes for each of the six candidates C) 300 votes for any two, none for the other four D) 150 votes for any four candidates None 60. Reasons why a corporation might engage in a stock buy-back program would include all of these except A) having stock available for future acquisitions. B) using the stock for employee stock options. C) increasing earnings per share. D) reducing annual interest expense. None 61. A stockholder owns 200 shares of common stock in a corporation that features statutory voting. If an election is being held in which six candidates are running for three seats on the board, the stockholder could cast the votes in which of the following ways? A) 600 votes for any one director, no votes for the others B) 100 votes for each of six directors. C) 200 votes for each of three directors D) 300 votes for each of two directors. None 62. An investor owns 300 shares of XYZ common stock, currently selling for $50 per share. The investor also owns 100 shares of XYZ's 5% $100 par preferred stock currently trading at $90 per share. A 2:1 stock split is declared. After the payment date, the investor will own A) 150 shares of common at $100 per share and 100 shares of the preferred at $90 per share. B) 600 shares of common at $25 per share and 100 shares of the preferred at $90 per share. C) 600 shares of common at $25 per share and 200 shares of the preferred at $45 per share. D) 300 shares of common at $50 per share and 200 shares of the preferred at $45 per share. None 63. DJX Corporation's charter has authorized 10 million shares of common stock. It has issued 5 million shares and has 1 million shares in its treasury. How many shares of DJX common stock are authorized but unissued? A) 6 million B) 9 million C) 4 million D) 5 million None 64. Common stock that has no voting power, no rights to receive dividends, that has been authorized and issued but is not outstanding is known as A) subordinated shares. B) Class B common shares. C) unissued stock. D) treasury stock. None 65. An investor holds 3,000 shares of a stock with a current market value of $12 per share. After a 1:6 stock split, the investor's position will be A) 15,000 shares with a market value of $12 per share. B) 500 shares with a market value of $2.40 per share. C) 15,000 shares with a market value of $2.40 per share. D) 500 shares with a market value of $72 per share. None 66. A corporation has gone out of business and the assets are being liquidated. Investors of the corporation have claim to those assets, including common stockholders. All the following terms apply to the common stockholders' claim except A) last. B) junior. C) senior. D) residual. None 67. Treasury stock is A) authorized but unissued stock owned by the company. B) preferred stock. C) issued by the U.S. Treasury Department. D) stock repurchased by the issuer. None 68. Marcus owns 5,000 shares of KYZ stock. He recently received proxies in the mail. Marcus would be able to use the proxies for all of the following except A) to vote on a proposed 2:1 stock split. B) to vote on the proposed issuance of 100,000 shares of convertible preferred stock. C) to vote for three members of the board of directors. D) to buy additional shares of KYZ common stock after the stock splits 2:1. None 69. A company's dividend on its common stock is A) mandatory if the company is profitable. B) voted on by shareholders. C) specified in the company charter. D) determined by its board of directors. None 70. A company has reverse split its common stock. The effect on the earnings per share will be A) none of these. B) an increase. C) no effect. D) a decrease. None 71. A corporation's corporate charter allows for cumulative voting. A shareholder with 300 shares would be able to vote in an election for three open seats in any of the following ways except A) 900 votes for any one open seat. B) 300 votes for each open seat. C) 450 votes for any two open seats. D) 900 votes for each open seat. None 72. Which of the following securities is considered the most junior? A) Common stock B) Debenture C) Prior lien preferred stock D) Mortgage bond None 73. Minority stockholders are more likely to be able to elect directors through which form of voting? A) Statutory B) Cumulative C) Regular D) Progressive None 74. Stockholders' preemptive rights include the right to A) maintain proportionate ownership interest in the corporation. B) sell stock back to the issuing corporation. C) purchase Treasury stock. D) serve as an officer on the board of directors. None 75. The board of directors of DMF, Inc., announces a 5, for-4 stock split. The market price of DMF after the split should decrease in value by A) 10%. B) 20%. C) 25%. D) 30%. None 76. An investor purchased 200 shares of DCAST common stock at $200 per share. What is the adjusted cost basis per share of this position after the company pays a 100% stock dividend? A) $100 B) $200 C) $400 D) $50 None 77. Elisha purchased 100 shares of RMBN common stock on June 6, 2019, at $60 per share. On February 11, 2020, RMBN paid shareholders a 20% stock dividend. Elisha sells the shares received as the stock dividend on December 5, 2020, at $55 per share. What are the tax consequences of this trade? A) $100 short-term capital loss B) $100 long-term capital gain C) $100 short-term capital gain D) $100 long-term capital loss None 78. Common stockholders have certain voting rights. Those rights do not include voting on A) determining the annual dividend rate. B) declaring stock splits. C) issuing convertible products or additional common stock. D) important corporate decisions such as mergers and acquisitions. None 79. Synapse Communication Corporation (SCC) is growing. To finance the expansion, the company has a $100 million debenture offering. Attached to the offering are five-year warrants to purchase SCC common shares. Each warrant allows for the purchase of two SCC shares at a price of $53 per share. Three years after the issue date, SCC stock is trading at $63 per share. Each warrant has A) an intrinsic value of $10. B) an intrinsic value of $20. C) no intrinsic value, only time value. D) an intrinsic value of $5. None 80. A corporation is having a rights offering. The terms of the offering require eight rights plus $88 to purchase one share. With the stock's current market price at $112 per share, the theoretical value of one right on the ex-rights date is A) $2.67. B) $3.00. C) $0.30. D) $0.27. None 81. QED Corporation, whose common stock is currently selling for $90 per share, is having a rights offering. The terms of the offering require seven rights plus $83 to subscribe to one share of stock. Compute the theoretical value of a right on the ex-rights date. A) $7.00 B) $1.125 C) $0.875 D) $1.00 None 82. Which of the following is an advantage of owning American depositary receipts (ADRs)? A) The investor can buy, sell, and receive dividends in U.S. dollars rather than a foreign currency. B) The investor receives preemptive rights should the issuer make an additional stock offering. C) The investor avoids the currency risk that characterizes many foreign investments. D) The investor has the right to vote at stockholders' meetings. None 83. Investing in ADRs presents certain risks that do not apply to investing in domestic stocks. One specific risk that applies only to ADRs is A) business risk. B) currency risk. C) market risk. D) financial risk. None 84. Dividends may be paid to holders of A) Treasury stock. B) warrants. C) American depositary receipts (ADRs). D) rights. None 85. A tombstone ad for a new bond issue announces that warrants to purchase shares of the issuer's common stock at $75 per share are attached to the bonds. The common stock is currently traded at $45 per share and the warrants expire in five years. What is the most likely reason the issuer attached the warrants to the bonds? A) To decrease the dilution of the current shareholders B) To improve the marketability of the bond issue C) To make the bonds convertible into the issuer's common stock D) To increase the dilution of the current shareholders None 86. If all other factors are equal, an investor would expect which type of preferred stock to pay the highest stated dividend rate? A) Cumulative B) Convertible C) Callable D) Straight None 87. The DERP Corporation has a rights offering. The common stock is currently selling at $45.50. DERP is issuing one new share of stock at $40 per share for each 10 shares owned. What is the theoretical value of one right when the stock is traded ex-rights? A) $0.40 B) $0.55 C) $0.45 D) $0.50 None 88. A corporation has 1 million shares of common stock outstanding. There is also a $100 par 6% cumulative convertible preferred issue with 100,000 shares outstanding. If the corporation wishes to use a rights offering to raise additional capital by selling 500,000 new shares of common, which of the following statements is true? A) It will require five rights granted to the preferred stockholders to buy one new share. B) Each common share will receive half of a right. C) It will require two rights to buy one new share. D) Each preferred share would receive five rights. None 89. A corporation wishes to raise additional capital by making use of a rights offering. One of your clients owns 200 shares of the issuing corporation's common stock and 100 shares of its preferred stock. The terms of the offering state that four rights will be necessary to purchase one new share at the subscription price of $20. The current market price of the stock is $24 per share. How many rights will your client receive? A) 50 B) 300 C) 200 D) 75 None 90. A convertible preferred stock issue (par value $100) is selling at $125 and is convertible into five shares of common stock. The conversion price of the common stock is A) $25. B) $100. C) $20. D) $1,200. None 91. Nickelplate Manufacturing Corporation (NMC) is capitalized with 1 million shares of a 6% $50 par callable preferred stock and 10 million shares of $1 par common stock. NMC has not paid any dividends at all for the past five quarters. The current quarter's earnings are excellent and the company would like to pay a dividend to its common shareholders. Doing so would require A) paying the preferred shareholders a dividend of $3.75 per share. B) paying the preferred shareholders a dividend of $0.75 per share. C) paying the preferred shareholders a dividend of $4.50 per share. D) an affirmative vote of the common shareholders. None 92. Which of the following would least likely occur when a corporation engaged in a rights offering? A) After successful completion of the offering, the market price would rise slightly. B) After successful completion of the offering, the market price would decline slightly. C) The corporation would use a standby underwriter. D) The number of outstanding shares would increase. None 93. American depositary receipt (ADR) owners have all the following rights except A) the right to sell the ADR in the foreign market. B) the right to receive dividends in U.S. dollars. C) the right to sell in the secondary market. D) the right to receive the underlying foreign security. None 94. A registered representative has a customer looking to invest in stock for income. The customer is looking for the highest fixed rate of return available based on her risk profile. Which of the following would be least suitable? A) Callable preferred B) Convertible preferred C) Cumulative preferred D) Straight preferred None 95. Sagacious Publishing Company (SPC) has issued a $25 par 4% preferred stock. If current market interest rates should rise, it is probable that A) SPC will lower the par value of the stock. B) SPC will increase the dividends to match market returns. C) the market price of this stock will decline. D) investors holding shares of this stock will vote to increase the dividends. None 96. The issuer of an American depositary receipt (ADR) is A) a foreign branch of a foreign bank. B) a domestic bank. C) a foreign branch of a domestic bank. D) a domestic branch of a foreign bank. None 97. New offering: 800,000 units at $6 per unit. Each unit has two shares of common stock and one warrant. Each warrant is to purchase half a share of common stock. Based on this information, how many shares of stock will be sold, and how many warrants will be sold? A) 800,000 shares and 200,000 warrants B) 1.6 million shares and 400,000 warrants C) 1.6 million shares and 800,000 warrants D) 800,000 shares and 400,000 warrants None 98. A convertible preferred stock with a par value of $100 is currently trading at $125 per share. The conversion ratio is 5:1. If the common stock is trading at $30 per share, what must the preferred stock's price be to be at parity? A) $70 B) $130 C) $150 D) $103 None 99. Investors in all of the following securities could receive dividend payments that increase over time except A) adjustable-rate preferred stock. B) participating preferred stock. C) cumulative preferred stock. D) common stock. None 100. One of your clients asks about a recent purchase of a preferred stock. When looking at online information about the stock, the client notices that no par value is assigned. How does the company determine the amount of dividend to be paid? A) On a no-par preferred stock, the company has the flexibility to increase or decrease the dividend as earnings warrant. B) The board of directors determines the amount each quarter based on current interest rates. C) On a no-par preferred stock, the dividend is paid as a percentage of the common stock dividend. D) On a no-par preferred stock, the dividend is a stated rate. None 101. In order for an investor to be eligible to receive a previously declared cash dividend, the stock must be purchased A) the day after the ex-dividend date. B) before the ex-dividend date. C) on the ex-dividend date. D) the day before the record date. None 102. XYZ Corporation, whose common stock is currently selling for $40 per share, is having a rights offering. The terms of the offering require 10 rights plus $35 to subscribe to one share of stock. Compute the theoretical value of a right before the ex-rights date. A) $3.50 B) $0.50 C) $0.55 D) $0.45 None 103. A company is offering investors the opportunity to purchase shares for the next five years at a fixed price slightly above today's market price. The company is issuing A) warrants. B) a letter of intent. C) futures. D) call options None 104. Corporations issue equity securities. One category of equity is preferred stock. A number of different adjectives can apply to preferred stock issues. All of the following are types of preferred stock except A) convertible preferred. B) participating preferred. C) cumulative preferred. D) straight cumulative preferred. None 105. Gargantuan Computers, Inc., (GCI) conducts a rights offering to its current shareholders at $50 per share, plus one right. If the current market price of GCI is $70, what is the value of one right before the stock trades ex-rights? A) 300 B) 10 C) 5 D) 15 None 106. Dividends from American depositary receipts (ADRs) held by U.S. investors are declared in A) U.S dollars but paid in the foreign currency. B) U.S. dollars and paid in U.S. dollars. C) the foreign currency and paid in the foreign currency. D) the foreign currency but paid in U.S. dollars. None 107. A sophisticated investor wants to purchase stock of a foreign company or an American depositary receipt (ADR) representing the shares of that company. The purchase would align with the investor's goal of growth and income, but he makes several statements about the potential purchase, and only one of them is accurate. You feel it is important to point out and discuss from a suitability perspective which statements were and were not accurate. Which of the following is the accurate statement? A) The direct purchase of the foreign stock shares eliminates currency risk. B) With the ADRs, I'll have voting rights just like I would if I purchased the shares directly. C) I can trade the foreign shares right here on U.S. exchanges. D) The purchase of ADRs representing the shares exposes me to currency risk. None 108. Certificates issued by U.S. domestic banks and trust companies against the deposit of shares of foreign securities are known as A) American share receipts. B) certificates of deposit. C) foreign depositary receipts. D) American depositary receipts. None 109. Preferred stock comes with many different options. What type of preferred stock would be most advantageous to the investor if the issuing company had strong revenue and earnings that exceeded industry estimates? A) Callable preferred B) Adjustable-rate C) Participating D) Cumulative None 110. All of the following statements describe stock rights except A) they are short-term instruments that become worthless after the expiration date. B) they are issued by a corporation. C) they are traded in the secondary market. D) they are most commonly offered with debentures to make the offering more attractive. None 111. One of your customers is looking for growth with some income. It would not be suitable for you to recommend A) common stock. B) ADRs. C) convertible preferred stock. D) warrants with a five-year expiration. None 112. A participating preferred stock A) has a senior claim in liquidation over holders of debentures. B) participates in voting along with the common shareholders. C) receives both a fixed dividend plus a share of the common dividend. D) must be paid any dividend arrearage before dividends may be paid on the common stock. None 113. A corporate offering of 200,000 additional shares to existing stockholders may be made through A) a warrant. B) a tender offer. C) a rights offering. D) a secondary offering. None 114. Which of the following statements regarding warrants are true? I. They pay dividends. II. They represent ownership in the issuing corporation. III. They allow for the purchase of common stock at a fixed price. IV. They do not give holders voting rights. A) I and II B) II and III C) III and IV D) II and IV None 115. Which of the following securities cannot pay a dividend? A) Class B common stock B) Warrants. C) Convertible preferred stock. D) American depositary receipts. None 116. An investor has purchased 100 shares of common stock of the UOM Corporation. UOM Corporation is a Japanese company. Rather than receiving a UOM stock certificate, the investor receives an American depositary receipt (ADR). The investor calls his registered representative and wants to know why he did not receive the stock certificate. The registered representative tells the client that A) the ADR is a substitute for the stock certificate and represents the investor's ownership in the foreign corporation's stock. B) UOM stock certificates were not available. C) receiving the stock certificates would cost the investor more money. D) records of ownership in UOM stock is book-entry only. None 117. Synapse Communication Corporation (SCC) is growing. To finance the expansion, the company has a $100 million debenture offering. Attached to the offering are five-year warrants to purchase SCC common shares. Each warrant allows for the purchase of one SCC share at a price of $53 per share. Three years after the issue date, SCC stock is trading at $63 per share. Each warrant has A) no intrinsic value, only time value. B) an intrinsic value of $5 per warrant. C) an intrinsic value of $10 per warrant. D) an intrinsic value of $20 per warrant. None 118. An American depositary receipt (ADR) is used to A) facilitate trading foreign securities in U.S. markets by U.S. citizens living in the United States. B) sweeten a bond offering. C) finance foreign trade in which U.S. citizens are engaged. D) facilitate trading U.S. securities in foreign markets by U.S. citizens living abroad. None 119. A new bond issue will include warrants to A) increase the price of the issue to the public. B) increase the attractiveness of the issue to the public. C) increase the capital raised by the issuer through the bond offering. D) increase the spread to the underwriter. None 120. All of the following are advantages of investing in American depositary receipts (ADRs) except A) transactions are done in U.S. currency. B) ADRs fall under the oversight of the SEC. C) dividends are received in U.S. currency. D) currency risk is virtually eliminated. None 121. GC, Inc., is proposing an additional public offering of common stock. It conducts a rights offering to its current shareholders at $55 per share, plus five rights. If the market price of GCI is $70 after the ex-rights date passes, what is the value of one right? A) 2.5 B) 5 C) 15 D) 3 None 122. Many investors diversify by adding foreign securities to their portfolios. Those who do so by purchasing foreign stock mutual funds are least likely to be concerned with A) liquidity risk. B) market risk. C) political risk. D) currency risk. None 123. Which of the following statements is true regarding dividend payments on common stock? A) Dividends on common stock are paid at the discretion of the board of directors and may be paid ahead of preferred stock when necessary to allow the company to remain listed on the exchange. B) Dividends on common stock are paid at the discretion of the board of directors and may be paid even where there are no earnings. C) Dividends on common stock are paid at the discretion of the board of directors and are paid as a stated percentage of the corporation's net income. D) Dividends on common stock are paid at the discretion of the board of directors and can be paid only when there are sufficient earnings. None 124. Which of the following features of preferred stock allows the holder to reduce the risk of inflation? A) Noncumulative B) Convertible C) Callable D) Cumulative None 125. As interest rates fall, prices of straight preferred stock will A) become volatile. B) remain unaffected. C) rise. D) fall. None 1 out of 125 Time is Up! Time's upTime is Up!
