The market price of ABC Corporation common stock is $56. The quarterly dividend is 75 cents. What is the current yield of the stock?
a. 1.3%
b. 4.7%
c. 5.3%
d. 6.8%
C. 5.3%
The current yield of a stock is found by dividing the yearly dividend by the market price of the stock. The market price is $56. The yearly dividend is $3 ($.75 x 4 = $3.00). Therefore, $3 divided by $56 equals 5.3%.
XYZ corporation has income before taxes of $2 million and received $100,000 in preferred dividends from a company in which it owns 25% of the outstanding shares. If XYZ corporation is in the 34% tax bracket, it will pay taxes of:
a. $686,800
b. $926,900
c
A. $686,800
Since XYZ corporation owns 25% of the outstanding shares, it is exempt from paying taxes on 80% of dividends received from the stock. The corporation would need to pay taxes on only $20,000 of the dividends received (20% of the $100,000 in pre
Which of the following statements is TRUE about treasury stock?
a. It receives dividends
b. It is treated as a deduction from outstanding shares
c. It has voting power
d. It is part of unauthorized stock
B. it is treated as a deduction from outstanding shares
Treasury stock is issued stock that has been repurchased by the corporation and is retired. It is treated as a deduction from the outstanding shares of a corporation and is no longer part of the capi
The stock price of XYZ Corporation has remained stable despite the fact that the company has increased the amount of its dividend. Under these conditions, what would happen to the stock's current yield?
a. It would increase
b. It would decrease
c. It woul
A. it would increase
The current yield of a stock is found by dividing the stock's annual dividend by its market price. If the dividend increases while the market price remains the same, the stock's current yield will increase
Which of the following statements is NOT TRUE of treasury stock?
a. It is listed on the company's balance sheet
b. Treasury stock has no voting rights and does not receive dividends
c. It is outstanding stock that has been repurchased by the corporation
d
D. treasury stock has been issued by the U.S. Treasury and was purchased by a corporation
Treasury stock is stock that has been issued and was outstanding but has been repurchased by the company. Treasury stock does not have voting rights nor the right to
A NYSE-listed stock closed at $72. The next day the stock is ex-dividend 60 cents. To determine if the stock increased or decreased from the close of trading, the price is based on:
a. 71.40
b. 71.70
c. 72.60
d. 72
A. 71.40
The stock will be reduced by 60 cents. The stock must be reduced in price to entirely cover the dividend. Therefore, the stock will open at 71.40 (72 - .60 = 71.40). If the stock closed at 72.50 that day, it will be quoted as an increase of $1.10
Bud Jones purchased 100 shares of DEF at 20 on June 16 and passed away on July 27 when the market value of DEF was 25. If the 100 shares of DEF are inherited by Mr. Jones's daughter Mary, what are the tax implications?
I. Mary assumes a cost basis of 20
I
II and IV
When securities are inherited, the recipient's cost basis is the market value of the securities at the time of the deceased's death. The recipient's holding period for the stock will be long-term, regardless of the deceased's actual holding peri
An investor owns 280 shares of XYZ Corporation. XYZ Corporation pays a 15-cent quarterly dividend. XYZ Corporation announces a 5-for-4 split. The dividend per share is adjusted to reflect the split. How much will the investor receive in dividends each qua
B. $42.00
After the split, the investor would own 350 shares (280 x 5/4 = (280 x 5) / 4 = 350) and would receive $42.00 each quarter (350 shares x $0.12 = $42.00) in dividends. To find the adjusted dividend per share, multiply the inverse of the split by
All of the following derivatives are created by an issuer of securities, EXCEPT:
a. Call options
b. Warrants
c. Rights
d. Convertible preferred stock
A. call options
Call options are issued by the Options Clearing Corporation (OCC) and not by an issuer of securities. The other products are created by an issuer of securities.
XYZ Corporation has 2,000,000 shares of common stock authorized. The company has issued 1,000,000 common shares of which 200,000 shares are treasury stock. The company has earnings of $2.00 per share. The XYZ Corporation has repurchased:
a. 200,000 shares
A. 200,000 shares
XYZ corporation has repurchased 200,000 shares. This is known as treasury stock. Treasury stock is previously outstanding stock that has been repurchased by a corporation.
A customer wishes to establish a tax loss and sells 100 shares of XYZ Corporation. The loss would not be allowed if the customer, within 30 days:
a. Bought an XYZ Corporation put
b. Sold an XYZ Corporation straddle
c. Bought an XYZ Corporation call
d. Sol
C. Bought an XYZ Corporation call
The IRS will not allow the loss if the same security or any security convertible into the same security is repurchased within 30 days of the sale. The customer must wait until the 31st day to buy back the security or its
On February 22, an investor sells ABC stock at $31 for a 3-point loss. On March 10, the investor purchases ABC stock at a price of $27. For tax purposes, the investor's cost basis for the stock purchased on March 10 is:
a. 24
b. 27
c. 30
d. 31
C. 30
When the wash sale rule is activated, the investor must add the loss to the new cost of the stock regardless of whether the stock is repurchased at a price that is higher or lower than the original cost. In this example, the investor's cost basis fo
A corporation's shareholders must vote for:
a. Cash dividends
b. Stock dividends
c. Stock splits
d. Stopping dividends
C. stock splits
The board of directors has control over dividends but must have shareholder approval for a stock split.
A client sells short 1,000 shares of KPL at $46 a share. If the client covers the short sale 14 months later and then, on the same day, delivers the stock to close out the short position at $35 a share, what will he report for tax purposes?
a. A short-ter
A. a short-term capital gain
Any resulting gain or loss on a short sale is typically treated as short-term, since the investor is not holding an asset (i.e., does not establish a holding period for the security). The customer closed out the short position
A customer owns stock of a corporation that has declared a $1 dividend to holders of record Monday, December 22. If the customer wants to sell the stock, but still be entitled to the dividend, he should sell the stock on:
I. Wednesday, December 17, regula
II or IV
The customer should sell the stock on Thursday, December 18 on a regular-way settlement basis or on Tuesday, December 23 on a cash settlement basis. Since the record date is Monday, December 22, the ex-dividend date is Thursday, December 18 (i.e.
A common shareholder is not entitled to:
a. Vote for the board of directors
b. Receive dividends if voted for by the board of directors
c. Give or sell shares to anyone she wishes
d. Appoint officers of the corporation
D. appoint officers of the corporation
Shareholders have the right to vote for the board of directors, but not to appoint officers of the corporation.
An individual is interested in an investment that offers annual income, has the potential of appreciating in value if interest rates decline and, in the event that the issuer fails to make a payment, having the missing amount added to future distributions
B. cumulative preferred stock
Individuals generally purchase preferred stock for income. As with any security that pays a fixed rate, there is the potential for appreciation if interest rates decline. There are several types of preferred stock. Cumulative
An investor feels the economy is improving and wants to structure her portfolio to focus more on stocks with greater growth potential. She will typically be looking for stocks with which TWO of the following characteristics?
I. High price-earnings ratios
I and IV
The term growth stock applies to a company that has shown a consistent high rate of growth for earnings over a given period. Historically, investors have been willing to pay more for one dollar of earnings for these stocks and they usually sell a
A corporation calls for the redemption of 1,000,000 shares of convertible preferred stock. The corporation announces that the convertible preferred will be redeemed at a price of $20 plus an accumulated dividend of 12 cents. Each share of preferred can be
A. 17.88
The preferred stock is convertible into 1/2 share of common stock. The common stock is selling for 35.75. Parity (or equality in dollar value) for the preferred stock is 1/2 of 35.75 (17.88).
On Monday August 3, the board of directors of XYZ Corporation issued a press release stating that at today's meeting, they had decided to pay a 25-cent quarterly dividend. The checks for the dividend are to be sent out on September 15. The checks will be
A. ex-dividend date
The ex-dividend date is the first day a stock trades without a dividend and this date is typically two business days prior to the record date. Therefore, a person who purchases the stock on or after the ex-dividend date is not entitled
A customer owns 1,000 shares of LRR preferred stock and the company is in the process of conducting a rights offering for its common stock. Under the terms of the rights offering, two rights are required to buy one new share and the subscription price is
D. no additional shares
As far as rights offerings are concerned, preferred stockholders do not have the right to subscribe to the offering. Instead, rights offerings are made available to common stockholders.
Company A:
EPS = $2
Dividends = $0.10
R/E = 95%
Company B:
EPS = $6.50
Dividends = $2.50
R/E = 62%
Company C:
EPS = $5.20
Dividends = $2.60
R/E = 50%
Company D:
EPS = $7.80
Dividends = $6
R/E = 23%
An investor is not concerned with current income, who ins
A. company a
Company A would best suit those needs as it is probably a growth company since it has the smallest dividend payout ratio and the largest percentage of retained earnings. The company pays out only 5% of its earnings in the form of dividends, r
A corporation is in the 34% tax bracket. Which of the following choices provides the BEST return if the corporation wanted to invest some of its surplus cash?
a. A preferred stock paying a 5 1/2% dividend
b. A corporate bond yielding 7%
c. A common stock
D. a municipal bond yielding 5.5%
According to the corporate dividend exclusion, corporations may exclude from taxation 70% of eligible dividends received from investments in stock of other corporations. For those corporations owning 20% or more of anothe
A notice of sale appears showing that RFQ corporation is selling 800,000 units at $60 per unit. Each unit consists of 2 shares of preferred stock and a warrant for 1/2 share of common stock. If all of the warrants are exercised, how many shares will be ou
D. 1,600,000 shares of preferred and 400,000 shares of common
Each unit was composed of 2 shares of preferred stock and a warrant for 1/2 share of common stock. There will immediately be 1,600,000 (800,000 x 2) shares of preferred outstanding. If the warr
A stock trades ex-dividend on Monday the 20th. What is the last day an investor can purchase the stock and be entitled to the dividend?
a. Monday the 13th
b. Thursday the 16th
c. Friday the 17th
d. Monday the 20th
C. Friday the 17th
To be entitled to receive the dividend, the stock must be purchased prior to the ex-dividend date. Friday the 17th is the last day an investor could purchase the stock and be entitled to the dividend, since it is the business day prior
A client owns 400 shares of stock in a European company. The client receives a cash dividend and tax is withheld by the European country. Which TWO of the following statements are TRUE concerning the U.S. tax implications for the client?
I. The taxes paid
I and III
U.S. citizens and corporations owning foreign stock may receive dividends from which foreign taxes have been withheld. The investor still owes U.S. income tax on the net dividend. The amount of the foreign tax, however, may be claimed by the inv
Which TWO of the following securities would be MOST suitable if interest rates are expected to rise?
I. Collateralized Mortgage Obligations
II. A bond with short-term maturities
III. Preferred stock with a fixed dividend
IV. Adjustable-rate preferred stoc
II and IV
If interest rates are expected to rise, the most suitable investments would be those that can be reinvested quickly to take advantage of rising rates, or variable or adjustable-rate securities. Bonds with short-term maturities can be reinvested
A stock closes at $37. The next day the stock sells ex-dividend $0.68 per share. At what price will the stock open the next day if it opens at the same level it closed the day before?
a. 36.66
b. 36.32
c. 37.00
d. 37.68
B. 36.32
The price of a stock is reduced by an amount sufficient to cover the dividend. The price will be reduced by 68 cents. Therefore, $37 - .68 = $36.32.
Mr. Brown, a shareholder of XYZ Corporation, reads in the newspaper that XYZ Corporation intends to issue new shares through a rights offering. The terms of the rights offering are as follows:
1. 10 rights plus $10.50 are required to subscribe to one new
I and II
Mr. Brown will tender (submit) his rights to either of the transfer agents, JPMorgan Chase or Bank of America.
A customer owns foreign securities that were purchased from a U.S. broker-dealer. Which TWO of the following amounts will be reported to the customer concerning the tax treatment of interest and dividends?
I. The gross amount of dividends and interest
II.
I and IV
Dividends and interest paid to a U.S. investor on foreign securities may be subject to withholding tax by the country from which they were paid. If the investor has securities that paid dividends and/or interest that were subject to foreign tax,
On June 5, 2013, an investor purchased 100 shares of ABC at 20. On November 10, 2013, he purchased an additional 100 shares of ABC at 12. On January 20, 2014, he sold 100 shares of ABC at 15. For tax purposes, he would have reported a:
a. $300 capital gai
D. $500 capital loss in 2014
In this question, the investor has two positions in ABC stock. Each was purchased at different times and at different prices. When selling a portion of his holdings, unless the investor identifies (on the order ticket) the spe
ABC Corporation has issued a call notice on its 5% convertible preferred stock. The preferred stock, which is convertible at $20, is being called at $110 and is currently trading at $111. If ABC's common stock is currently trading at $23, what should an R
A. Convert the preferred stock into common stock and sell the common stock
To determine the best choice for the investor, let's evaluate each possibility separately.
1. The preferred stock may be converted into five shares of common stock ($100 par value
A corporation calls for the redemption of 1,000,000 shares of convertible preferred stock. The corporation announces that the convertible preferred will be redeemed at a price of $20 plus an accumulated dividend of 12 cents. Each share of preferred can be
C. 2,500,000
If all of the preferred stock were converted into common stock, there will be an additional 500,000 shares of common stock outstanding, (1/2 of 1,000,000 = 500,000.) This, added to the 2,000,000 shares outstanding, equals 2,500,000 shares of
A company has a noncumulative preferred stock outstanding that pays a $5 dividend per year. If dividends on the preferred stock were not paid last year, but will be paid this year, how much will the preferred stockholder receive?
a. $5
b. $10
c. $15
d. $2
A. $5
The preferred stock is noncumulative, which means that if the dividend is not paid, it does not accumulate to the next year. Therefore, the preferred stockholder will receive only $5 for this year.
An investor owns 4,000 shares of common stock that pays a quarterly dividend of 35 cents. If the investor purchases 500 additional shares prior to the first ex-dividend date of the year, what is the investor's expected annual income from the investment?
a
D. $6,300
The annual income from the common stock is determined by multiplying the annual dividend by the number of shares owned by the client. Since the additional 500 shares were purchased prior to the first ex-dividend date of the year, the investor is
XYZ corporation has 7,000,000 shares of common stock ($1 par value) authorized, of which 5,000,000 shares have been issued. There are 500,000 shares of treasury stock. The current market price of XYZ is 20. The market capitalization of the outstanding com
A. $90,000,000
Outstanding shares are issued shares minus treasury stock (shares repurchased by the company). There are 4,500,000 shares outstanding with a market value of $20.00 per share. Therefore, the market capitalization is $90,000,000.
A convertible preferred stock is convertible at $10, pays a 4% annual dividend, is callable at $110, and is trading at a current market price of $116. Based on these details, what is the parity price of the common stock?
a. $10.00
b. $11.60
c. $11.00
d. $
B. $11.60
The first step in determining the parity price for a convertible security is to find the conversion ratio (i.e., the number of common shares to be received if the preferred stock is converted). The conversion ratio is calculated by dividing the
Foremost Corporation has declared a quarterly dividend of 25 cents payable to stockholders of record on Friday, December 1. The dividend will be paid to all stockholders whose names appear on the record books of Foremost Corporation on:
a. November 28
b.
D. December 1
The dividend will be paid to all stockholders whose names appear on the record books of Foremost Corporation on the record date, which is given in this example as December 1.
An investor owns convertible preferred stock that was originally purchased at $106. The stock is convertible at $25 and has a current market price of $112. If the common stock is currently trading at $27.75 and the investor decides to convert the preferre
C. $26.50
To determine the cost basis of the common stock, the first step is to calculate the conversion ratio (i.e., the number of common shares to be received if the preferred stock is converted). The formula for calculating conversion ratio is the par
How would preferred stock most likely be affected by an increase in interest rates?
a. Its market value would increase
b. Its market value would decrease
c. Its dividend would decrease
d. There would be no effect
B. its market value would decrease
Since preferred stock is a fixed-income security paying a fixed dividend each quarter, it is affected by interest rates in the same way as bonds. If interest rates rise, the value of existing bonds and preferred stock wi
Which of the following stocks would most likely be considered a defensive stock?
a. An aerospace stock
b. A utility stock
c. An airline stock
d. An automobile stock
B. a utility stock
Utility, food, beer, candy, pharmaceutical, tobacco, and soft drink stocks would be considered defensive stocks. They offer the investor a greater amount of safety because in periods of recession and adverse economic conditions these co
An investor wishes to establish a tax loss but still wants to own the same security. The customer sells the security and repurchases it two weeks later. The tax loss is:
a. Established
b. Recognized
c. Disallowed
d. Amortized
C. disallowed
The tax loss is disallowed. The customer must wait more than 30 days before repurchasing the same security or any security convertible into the security (a right, option, warrant, or convertible bond). The customer repurchased the same secur
Junius Arbor purchased stock in 2002 for $24,000. In April 20XX, Mr. Arbor passed away. His estate valued the stock at $82,000. The stock was willed in equal amounts to his daughter Cathy and his son Bob. Cathy sold her stock on September 2, 20XX for $48,
B. Cathy has a long-term gain of $7,000 and Bob has long-term gain of $15,000
In the case of inherited securities, the value of the securities is determined at the time of death. The heirs are always considered to have long-term holding periods. The capit
An individual owns 800 shares of stock at an original cost of $55 per share. If the company distributes a 15% stock dividend, what is the client's cost basis per share?
a. $63.25
b. $55.00
c. $47.83
d. $47.75
C. $47.83
A stock dividend is not a taxable event when received. The investor must adjust her cost basis. The investor would now own 920 shares (800 shares x 1.15). The new cost basis would be $47.83 (original cost of $44,000 [800 shares x $55] divided by
A customer sells 100 shares of GM short. GM pays a 5% stock dividend. When the customer covers the short position, the customer will need to deliver:
a. 5 shares of GM
b. 100 shares of GM
c. 105 shares of GM
d. None of the above
C. 105 shares of GM
When a customer sells short, the brokerage firm borrows stock to deliver it to the buyer. All cash and stock dividends paid are the responsibility of the customer who sold the stock short. In this example, GM paid a 5% stock dividend.
Series K preferred stock is suitable for which of the following investors?
a. An investor who is seeking a fixed rate dividend for the life of the security
b. An investor who is seeking a floating rate dividend for the life of the security
c. An investor
D. An investor who is seeking a high fixed dividend for a period of time followed by a floating rate dividend
Series K preferred stock has the following characteristics:
� It is issued by a financial service company
� It has no maturity date
� It pays a f
Briana Corporation, an existing public company, is offering 500,000 shares of common stock to the public through an underwriting syndicate. The prospectus states that 250,000 shares are being offered by selling stockholders and 250,000 shares are being of
I and IV
After the offering is completed, there will be 250,000 new shares outstanding (The shares sold by the selling stockholders were already outstanding.) This will result in the earnings per share being diluted because the earnings will now be divide
The security with the longest expiration date would normally be a:
a. Put
b. Call
c. Warrant
d. Right
C. warrant
A warrant generally has an expiration date longer than a put, call, or right. There are some warrants which never expire
An investor has been following XYZ Corporation for several years and believes that the company is poised for some very profitable years. Since she wants to purchase a security that offers a consistent annual distribution and one that benefits from XYZ dec
B. participating preferred stock
Participating preferred stock allows the owners to share in the extraordinary earnings of a company. Essentially, participating preferred has a stated dividend, but these shareholders may receive more than the stated amoun
Ashton purchased 100 shares of XYZ common stock in January 2003, at a price of $25 per share. XYZ pays a quarterly dividend of $.25 per share. Today, XYZ closed at $30 per share. What is the dividend yield of XYZ common stock?
a. .83%
b. 1.25%
c. 3.33%
d.
C. 3.33%
The dividend yield for a stock is equal to the annualized dividend divided by the current market price. Since dividends are paid quarterly, the annual dividend is $1 per share ($.25 x 4). The annualized dividend of $1 divided by the current marke
A corporation declares a 2-for-1 stock split payable on November 30 to holders of record on November 1. The ex-date is December 1. The first day that the stock will trade without a due bill attached is:
a. October 28
b. November 29
c. November 30
d. Decem
D. December 1
Whoever is the stockholder of record on the record date (Nov. 1) will be credited with the additional shares resulting from the split. If that person liquidates the position prior to the ex-date (Dec. 1), the buyer must receive a due bill up
A notice is published stating that RMO 5% convertible preferred stock will be called at $60 per share. The preferred is convertible into 1/2 share of common and is selling in the market at $56 per share. RMO common stock is selling in the market at $110 p
D. a price near $60
Converting the preferred stock has a value of $55 ($110 per common share x 1/2 conversion ratio). Since the call price of $60 is more beneficial to the preferred stockholder, the market price of the preferred stock will most likely ris
The stock of which of the following companies is most likely considered cyclical stock?
a. An oil and gas company
b. A home appliance company
c. A utility company
d. A pharmaceutical company
B. a home appliance company
A cyclical company is one whose sales correspond to changes in the business cycle and, therefore, will be affected by a recession. Examples of cyclical stock includes the stock of household appliance companies, steel companies,
Which TWO of the following securities will MOST likely be subject to a withholding tax?
I. A bond issued by a U.S. company but sold to U.S. investors
II. A bond issued by a foreign company but sold to U.S. investors
III. Stock issued by a foreign company
II and III
Choice (II) is an example of a Yankee bond and choice (III) is an example of an ADR. Dividends and interest paid to a U.S. investor on foreign securities may be subject to a withholding tax by the country from which they were paid. If the inves
Aglet International, Inc. has pretax income of $2,000,000. In addition, it received dividends of $100,000 from the common stock of a corporation in which it had a 10% interest. If the corporation pays a 34% tax rate, what is its total tax liability?
a.$68
C. $690,200
If a corporation owns less than 20% of the distributing company, the corporation is required to pay tax on 30% of the dividends it receives on stock that it owns (70% is excluded). The company would need to add $30,000 (30% of $100,000) to its
The quarterly dividend of ABC company is 32 1/2 cents. The market price is $24.00 a share. What is the current yield?
a. 1.35%
b. 2.38%
c. 4.82%
d. 5.41%
D. 5.41%
The formula for computing current yield (also known as the dividend yield) is: Annual Dividend / Market Price of the Stock
Since the quarterly dividend is 32 1/2 cents, the annual dividend is $1.30 (32 1/2 x 4 = $1.30). $1.30 divided by the $24 m
A company based in Europe with offices located in New Jersey would like to have its stock traded on the NYSE. This most likely will be accomplished through the issuance of:
a. Yankee bonds
b. Eurodollar bonds
c. Bankers' Acceptances
d. American Depositary
D. American Depository Receipts
American Depositary Receipts (ADRs) facilitate U.S. investment in the stock of foreign corporations. When the foreign securities are deposited in a U.S. bank based in that country, a receipt for those securities is issued a
Company A:
EPS = $2
Dividends = $0.10
R/E = 95%
Company B:
EPS = $6.50
Dividends = $2.50
R/E = 62%
Company C:
EPS = $5.20
Dividends = $2.60
R/E = 50%
Company D:
EPS = $7.80
Dividends = $6
R/E = 23%
An investor has decided to diversify her portfolio into a
D. company D
Company D is probably a utility since utility companies usually have a high dividend payout ratio and a low percentage of retained earnings.
For tax purposes, corporations may exclude a portion of the dividends received from:
I. Municipal bonds
II. Corporate bonds of other corporations
III. Preferred stocks of other corporations
IV. Common stocks of other corporations
III and IV
Corporations may exclude a portion of the dividends received from equity investments in other corporations. This includes common stock and preferred stock.
On February 10, an investor sold 100 shares of ABC short at $50/share. The investor covers the position on November 1 by purchasing 100 shares of ABC at $58/share, establishing an 8-point loss. If, on November 15, the investor shorts 100 shares of ABC at
B. the wash sale rule has been violated
Reinstating a position within 30 days of realizing a loss is a violation of the wash sale rule. The November 15 short sale creates a new short position in ABC only 15 days after establishing a loss on an original sh
Warrants are most likely issued to:
a. Replace outstanding common shares
b. Create an incentive to purchase a bond which is offering a lower interest rate
c. Compensate the underwriting syndicate
d. Reduce the issue price of securities
B. create an incentive to purchase a bond which is offering a lower interest rate
Warrants are generally issued in connection with an offering of stock or bonds as an incentive to purchase that security. When issued with (attached to) bonds, it may allow
Ms. Jones, a shareholder of XYZ Corporation, reads in the newspaper that XYZ Corporation intends to issue new shares through a rights offering. The terms of the rights offering are as follows:
1. 10 rights plus $10.50 are required to subscribe to one new
D. Preferred stockholders are not permitted to participate in a rights offering
Preferred stockholders are not permitted to participate in a rights offering. Only the common stockholders are permitted.
John Jones, a shareholder of XYZ Corporation, reads in the newspaper that XYZ Corporation intends to issue new shares through a rights offering. The terms of the rights offering are as follows:
1. 10 rights plus $10.50 are required to subscribe to one new
C. not be permitted to subscribe because the stock traded ex-rights on October 15
John would not be permitted to subscribe to the rights offering for the new shares because he purchased the stock on October 16. The stock sold ex-rights on October 15. Ther
A client owns 3,000 shares of stock in a company headquartered outside the U.S. The client receives a cash dividend and tax is withheld by the country where the company is located. Which TWO of the following statements are TRUE concerning the U.S. tax imp
II and IV
U.S. citizens and corporations owning foreign stock may receive dividends from which foreign taxes have been withheld. The investor still owes U.S. income tax on the net dividend. The amount of the foreign tax, however, may be claimed by the inv
A customer owns a mutual fund that invests primarily in foreign securities. Which TWO of the following amounts will be reported to the customer concerning the tax treatment of interest and dividends?
I. The net amount of dividends and interest
II. The gro
II and IV
If an investor owns a mutual fund that invests in foreign securities, and dividends and interest are paid to a U.S. investor, these earnings may be subject to withholding tax by the country from which they were paid. The broker-dealer will send
A customer owns 50 shares of ABC Corporation. ABC Corporation is engaging in a rights offering. Each existing share receives one right. The terms of the offering are that 10 rights plus $35 is required to buy one new share of stock. If the customer wanted
D. 950
The terms of the rights offering are that 10 rights are required to subscribe to one new share of stock. If an investor wanted to subscribe to 100 shares of stock, the investor would need 1,000 rights. (10 rights x 100 shares = 1,000 rights.) The i
Which TWO of the following securities pay a dividend that is NOT eligible for the corporate dividend exclusion?
I. Common stock
II. Preferred stock
III. A real estate investment trust
IV. A money-market fund
III and IV
Corporations are allowed an exclusion on dividends received from investments in common and preferred stock. Real estate investment trusts (REITs) make distributions in pretax dollars. The payout from a REIT normally results from collections of
Mrs. Jones owns stock from which she received $3,000 in cash dividends. Mr. Jones owns stock from which he received $400 in cash dividends. How much of the cash dividends received are Mr. and Mrs. Jones liable for when filing their joint return?
a. 0
b. $
D. $3,400
Cash dividends received by individuals are fully taxable and, therefore, the entire $3,400 total of dividends is liable for taxes.
The following dividend information for New York Stock Exchange listed common stocks is reported in The Wall Street Journal.
Cummings Corp:
Quarterly Dividend: $0.50
Record Date: 4/10
Payable Date: 5/15
Federal Corp:
Quarterly Dividend: $0.85
Record Date:
B. is not entitled to receive the 50-cent quarterly dividend
A buyer of Cummings Corporation is not entitled to receive the 50-cent quarterly dividend because the purchase was made on May 10. This was after the stock had already sold ex-dividend (without
Ms. Jones, a shareholder of XYZ Corporation, reads in the newspaper that XYZ Corporation intends to issue new shares through a rights offering. The terms of the rights offering are as follows:
1. 10 rights plus $10.50 are required to subscribe to one new
D. 9 shares plus $94.50
Ms. Jones can subscribe to nine shares at a cost of $94.50. The terms of the rights offering indicate that 10 rights plus $10.50 are needed to subscribe to one new share of stock. Fractional shares become whole shares. She will rec
A customer sells short 400 shares and the company declares a 10% stock dividend. When the customer covers the short position, the customer will be required to deliver:
a. 40 shares
b. 360 shares
c. 400 shares
d. 440 shares
D. 440 shares
When a customer sells short, the brokerage firm borrows stock to deliver it to the buyer. All cash and stock dividends declared are the responsibility of the customer who sold the stock short. In this example, the company declares a 10% stoc
Which TWO of the following statements are TRUE concerning the characteristics of preferred stock?
I. The securities do not have a fixed maturity date
II. The price of these securities is more volatile than common stock
III. The dividend will be paid annua
I and IV
Most preferred stock does not have a maturity date and, therefore, one of the risks of purchasing this type of security is that there is no fixed date when you will receive your principal back. These securities are less volatile than common stock
Series K preferred stock has which TWO of the following characteristics?
I. The dividend payable begins at a fixed rate and switches to a floating rate
II. The dividend payable begins at a floating rate and switches to a fixed rate
III. The dividend is cu
I and IV
Series K preferred stock has the following characteristics:
� It is issued by a financial service company
� It has no maturity date
� It pays a fixed rate for a period and switches to a floating rate (usually based on LIBOR)
� It's dividend is no
ABC Corporation is paying a $5 yearly dividend on its preferred stock. The market price of the preferred stock is $80. The current yield is:
a. 5.55%
b. 6.25%
c. 7.35%
d. 8.25%
B. 6.25%
The current yield on common or preferred stock is found by dividing the yearly dividend by the market price of the stock. In this example, the market price of the preferred stock is $80 and the yearly dividend is $5. This equals a current yield o