Question 1

If a company has preferred stock, it must pay the dividends on the preferred even if it shows no profit for the year.

Accepted Answer

A) True 
 B)False

Question 2

The difference between the rights-on and ex-rights price is equal to the subscription price divided by N.

Accepted Answer

A) True 
 B)False

Question 3

The most important feature of the preemptive right is that the rights

Accepted Answer

A)   may be sold for profit.
B)   afford stockholders protection against dilution.
C)   may be cumulatively voted.
D)   are nontransferable.E) B) and C)
F) None of the above

Question 4

Which of the following is not true about rights trading on organized exchanges?

Accepted Answer

A)   Rights trade at low prices
B)   Continuous trading of a right for long periods of time (similar to stocks) 
C)   Rights trading tends to surge during bull markets
D)   All are trueE) A) and B)
F) A) and C)

Question 5

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

Accepted Answer

A) True 
 B)False

Question 6

A corporate investor of preferred stock receiving a before-tax preferred yield of 8.5%, and having a corporate tax rate of 30% would receive an after-tax preferred yield of:

Accepted Answer

A)   10.2%
B)   7.7%
C)   8.1%
D)   9.3%E) A) and B)
F) A) and C)

Question 7

Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements about floating rate preferred stock is true?

Accepted Answer

A)   The dividend rate changes quarterly.
B)   The price of the stock will fluctuate with the market.
C)   The dividend rate is tied to the inflation rate.
D)   More than one of the above are true.E) All of the above
F) A) and B)

Question 9

Because of tax considerations, corporations often are able to issue preferred stock at a slightly lower yield than debt.

Accepted Answer

A) True 
 B)False

Question 10

When a stock sells ex-rights, the sale of the shares no longer entitles the purchaser to receive a right.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is not a true statement?

Accepted Answer

A)   Common stockholders have a residual claim to income.
B)   Bondholders may force a corporation into bankruptcy for failure to make interest payments.
C)   Common stockholders are legally entitled to some dividend.
D)   A minority interest can still elect members to the Board of Directors under cumulative voting even though someone else owns 51% of the stock.E) A) and B)
F) A) and C)

Question 12

To the security holder, preferred stock offers the highest risk and the lowest return.

Accepted Answer

A) True 
 B)False

Question 13

Investors are usually in favor of poison pills because it prevents takeovers.

Accepted Answer

A) True 
 B)False

Question 14

American Depository Receipts

Accepted Answer

A)   have annual reports and financial statement presented in English.
B)   pay dividends in dollars.
C)   are more liquid and less expensive to buy than foreign stock.
D)   all of these are true.E) A) and B)
F) A) and C)

Question 15

A rights offering

Accepted Answer

A)   gives a firm a built-in market for new securities.
B)   will likely lead to considerably higher distribution costs.
C)   will increase the shareholder's total valuation.
D)   is the least expensive way to raise capital.E) A) and B)
F) None of the above

Question 16

The increasing sophistication of individual investors has decreased the role of institutional investors in the stock market.

Accepted Answer

A) True 
 B)False

Question 17

The market price of floating rate preferred stock is less volatile than that of regular preferred stock.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following are benefits of a rights offering?

Accepted Answer

A)   Rights offerings increase return on equity.
B)   Rights offerings substantiate higher debt to equity ratios.
C)   Rights offerings have lower margin requirements.
D)   None of these.E) A) and D)
F) None of the above

Question 19

The floating rate feature on preferred stock allows the shareholders

Accepted Answer

A)   to receive more dividends than the quoted yield when the firm enjoys a good year.
B)   to pay lower taxes when the dividend yield increases.
C)   to receive dividends which the corporation did not pay in previous years.
D)   to receive a higher or lower dividend yield depending on current competitive market conditions.E) B) and C)
F) A) and C)

Question 20

Stock purchased through a rights offering may carry lower margin requirements.

Accepted Answer

A) True 
 B)False

Exam 17: Common and Preferred Stock Financing

Which of the following is not true about rights trading on organized exchanges?

Correct AnswerverifiedShow Answer

Investors are usually in favor of poison pills because it prevents takeovers.

Correct AnswerverifiedShow Answer

If a company has preferred stock, it must pay the dividends on the preferred even if it shows no profit for the year.

Correct AnswerverifiedShow Answer

Which of the following is not a true statement?

Correct AnswerverifiedShow Answer

The most important feature of the preemptive right is that the rights

Correct AnswerverifiedShow Answer

American Depository Receipts

Correct AnswerverifiedShow Answer

Which of the following are benefits of a rights offering?

Correct AnswerverifiedShow Answer

Stock purchased through a rights offering may carry lower margin requirements.

Correct AnswerverifiedShow Answer

Which of the following statements about floating rate preferred stock is true?

Correct AnswerverifiedShow Answer

To the security holder, preferred stock offers the highest risk and the lowest return.

Correct AnswerverifiedShow Answer

The increasing sophistication of individual investors has decreased the role of institutional investors in the stock market.

Correct AnswerverifiedShow Answer

A corporate investor of preferred stock receiving a before-tax preferred yield of 8.5%, and having a corporate tax rate of 30% would receive an after-tax preferred yield of:

Correct AnswerverifiedShow Answer

Because of tax considerations, corporations often are able to issue preferred stock at a slightly lower yield than debt.

Correct AnswerverifiedShow Answer

The difference between the rights-on and ex-rights price is equal to the subscription price divided by N.

Correct AnswerverifiedShow Answer

The market price of floating rate preferred stock is less volatile than that of regular preferred stock.

Correct AnswerverifiedShow Answer

Pre-emptive rights offerings are an especially popular way in Europe to raise money and fund expansions.

Correct AnswerverifiedShow Answer

When a stock sells ex-rights, the sale of the shares no longer entitles the purchaser to receive a right.

Correct AnswerverifiedShow Answer

A rights offering is generally financially advantageous to the investor because it provides them with additional shares of stock.

Correct AnswerverifiedShow Answer

The floating rate feature on preferred stock allows the shareholders

Correct AnswerverifiedShow Answer

A rights offering

Correct AnswerverifiedShow Answer

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