Deck 13: Characteristics of Common Stocks

Question 1

When a corporation plans an issuance of new common shares, the existing shareholders have a(n) ____ which allows them to purchase the new shares in proportion to the number of shares they currently own.

A) preemptive right
B) reverse stock split
C) ex-distribution date
D) proportional interest

Answer 1

A

Question 2

Using ____ , a large corporation may register securities in advance of issuance and sell them up to two years later.

A) shelf registration
B) leveraged buyout
C) greenmail
D) restricted stock

Answer 2

A

Question 3

When only a few large institutional investors are solicited, and the entire new stock issue is sold to one or a few of them, it is referred to as a(n)

A) poison pill defense
B) private placement
C) repurchase offer
D) oversubscription privilege

Answer 3

B

Question 4

When a corporation is first chartered, it is authorized by the state to issue up to a stated number of shares of common stock, each of which carries a specified

A) par value
B) tender offer
C) dividend payment
D) size effect

Question 5

A corporate charter must be approved by what government?

A) state
B) county
C) national
D) regional

Question 6

Compared to bonds, common stocks

A) are easier to analyze.
B) have a fixed life.
C) have a more uncertain value.
D) have a maximum payment to owners.

Question 7

You own 300 shares anUnder a cumulative voting system, the most votes you could give one candidate is

A) 75.
B) 300.
C) 1000.
D) 1200.

Question 8

The state that has a disproportionate number of corporate charters is

A) Delaware.
B) California.
C) Rhode Island.
D) Nebraska.

Question 9

Stockholders who are to receive a cash dividend are identified by use of a(n)

A) stock split
B) treasury stock
C) ex-dividend date
D) leveraged buyout

Question 10

__ values stress the future expected returns while ex-post values stress historical returns.

A) Ex-dividend
B) Ex -distribution
C) Ex-ante
D) Ex-rights

Question 11

A ___ is an action by an individual or a firm to acquire controlling interest in a corporation.

A) Pac-Man defense
B) takeover
C) best-efforts basis
D) prospectus

Question 12

In stock quotations the dividend amount is divided by the closing price to obtain the

A) par value
B) subscription price
C) price to earnings ratio
E) dividend yield

Question 13

Transfer agents and registrars for common stock certificates are usually

A) brokerage firms.
B) insurance companies.
C) mutual funds.
D) banks.

Question 14

For a person who owns 60% of the voting stock in a majority voting system, the percentage of the Board of Directors he can elect is

A) 20
B) 40
C) 60
D) 100

Question 15

A __ is an accounting transaction that increases the amount of stock held by existing shareholders in proportion to the number of shares currently owned by the shareholders.

A) preemptive right
B) stock split
C) rights offering
D) tender offer

Question 16

In a cumulative voting system there are five directors to be elected and there are 500 shares to be voted. To guarantee that you can elect one director, you must control a minimum of how many shares?

A) 100
B) 85
C) 40
D) 201

Question 17

An accounting transaction that distributes something other than cash to existing shareholders in proportion to the numbers of shares currently owned by the stockholders is known as a ___ dividend.

A) cash
B) in-kind
C) restricted
D) stock

Question 18

The signing by a shareholder of a power of attorney, thereby authorizing a designated part to cast all of the holder's votes on any matter brought up at the annual stockholders' meeting, is known as a(n)

A) shelf registration
B) red herring
C) proxy
D) option

Question 19

A ____ is a document issued by a state to a corporation that specifies the rights and obligations of the stockholders.

A) reseller's license
B) trust certificate
C) indenture
D) charter

Question 20

You own 200 shares anUnder a majority voting system, the most votes you could give one candidate is

A) 40.
B) 100.
C) 200.
D) 400.

Question 21

In a tender offer, the offer price for the target firm stock is generally set

A) above its market price.
B) at its market price.
C) there is no pattern to price setting.
D) 20% below its market price.

Question 22

Among the following industries, the one with a Beta below 1 would be

A) electronics.
B) travel, outdoor recreation.
C) telephone.
D) air transport.

Question 23

The ex-dividend date is

A) the day dividends are paid.
B) the day the stock price rises equal to the dividend.
C) four days before the date of record.
D) the last day to purchase shares to receive the dividend.

Question 24

New issues of common stock

A) must be sold at par value.
B) must be sold at a stated value.
C) can be sold at any price.
D) no longer are allowed to state a par value.

Question 25

Historically for NYSE stocks:

A) the highest returns are on Friday.
B) the lowest returns are on Monday.
C) the lowest returns are on Friday.
D) the highest returns are on Monday.

Question 26

As a measure of the market return, the text uses

A) S+P 500.
B) Value Line.
C) New York Stock Exchange Index.
D) Wilshire Index.

Question 27

Insider information is also known as

A) material nonpublic information.
B) illegal share abuse.
C) poison pill.
D) Chinese walls.

Question 28

Among the following industries, the one with the largest Beta would be

A) liquor.
B) air transport.
C) public energy utilities.
D) banks.

Question 29

Treasury shares

A) can vote.
B) receive dividends.
C) are no longer authorized shares.
D) have been repurchased by the company.

Question 30

When common stock is sold to the public at more than its par value, the excess is reported as

A) paid-in-capital.
B) treasury stock reserves.
C) a current liability.
D) a stated value account balance.

Question 31

Historically, for NYSE stocks the highest yield is achieved during the month of

A) January.
B) April.
C) there is no unique month.
D) October.

Question 32

The book value per common share is calculated by taking

A) total assets/shares authorized.
B) total assets/shares outstanding.
C) book value of equity/shares outstanding.
D) sales/shares outstanding.

Question 33

A management buyout is also referred to as a

A) merger.
B) poison pill.
C) leveraged buyout.
D) greenmail.

Question 34

A strategy that is not used by target firms to fend off a takeover is

A) greenmail.
B) LBO.
C) Pac-Man.
D) poison pill.

Question 35

For the years 1926-1990, a small firm portfolio compared to the S&P 500 had

A) larger yield and less risk.
B) larger yield and more risk.
C) the same characteristics.
D) smaller yield and more risk.

Question 36

The technique used to estimate ex post Betas is

A) geometric mean.
B) linear regression.
C) arithmetic mean.
D) median yield.

Question 37

Letter stock

A) can be sold immediately after purchase.
B) is registered with the SEC.
C) is not allowed in the United States.
D) could be sold two years after purchase if it is a small percentage of outstanding shares.

Question 38

Insider transactions in the company's shares

A) are published within one week of occurrence.
B) must be reported by officers but not by directors.
C) are reported immediately in the Wall Street Journal.
D) must be reported by any shareholder owning at least 10% of the voting shares.

Question 39

Foreign stocks traded in the United States and stated in dollars are

A) CD's.
B) ADR's.
C) Primes.
D) Class B Stock.

Question 40

You own 100 shares with a market value of $80 each. The company declares a 4-for-1 split.

A) Your total market value will be $2,000.
B) The market price will be approximately $20 per share.
C) You will own 25 shares.
D) The company will reduce its Retained Earnings by $8,000.

Question 41

The "tax selling" price effect in January

A) is contrary to efficient market theory.
B) is prevalent over the entire month.
C) is the same for large and small firms.
D) depresses prices of stocks.

Question 42

Shares have a market value of $50 per share and the firm is planning to issue additional shares. A typical subscription price per share for a rights offering would be

A) $50.
B) $60.
C) $100.
D) $40.

Question 43

The market value of a firm, if it is unlevered, (Vu) is equal to

A) V1***D
B) D(BetaD)+V1
C) V1-D(BetaD)
D) V1+***D

Question 44

To adjust betas for the future, both Value Line and Merrill Lynch assign the following weights to the historic beta and to the market:

A) 66%, 34%
B) 50%, 50%
C) 80%, 20%
D) 34%, 66%

Question 45

An industry has a Beta of 1.5 and your firm in that industry has a Beta of 1.2. Standard forecasting procedures for your future Beta would likely result in a value of

A) 1.0.
B) 1.2.
C) 1.4.
D) 1.5.

Question 46

Based on the studies of NYSE stock prices, an investor should

A) sell late on Friday.
B) buy early Monday morning.
C) sell small firms in late December.
D) buy large firms in late December.

Question 47

Firms that increase their dividend yield tend to

A) decrease their debt ratio.
B) decrease their Alpha.
C) increase their Beta.
D) decrease their Beta.

Question 48

Adding and subtracting one standard error of beta to the estimated beta indicates there is approximately what percent chance that the true beta lies in the range?

A) 33
B) 50
C) 55
D) 66

Question 49

The present market price per share is $25 and the value of a right is $.50. The expected market price per share after the rights offering is

A) $25.00.
B) $24.50.
C) $22.50.
D) $50.00.

Question 50

Including dividends as part of the yield in the CAPM would tend to

A) decrease beta.
B) decrease alpha.
C) increase alpha.
D) have no effect on alpha or beta.

Question 51

Within the Stock Quotations, a firm's Price-Earnings ratio is calculated by taking its

A) Book Value/Last Year's Earnings Per Share.
B) Present Market Price Per Share/Forecasted Earnings Per Share.
C) Present Market Price Per Share/Earnings Per Share Over the Last Year.
D) Average Market Price Per Share Over the Last Year/Forecasted Earnings Per share.

Question 52

The proportion of variation in a company's return that is related to the variation in the market return is measured with the

A) coefficient of determination.
B) standard deviation.
C) epsilon.
D) alpha.

Question 53

Average returns on NYSE stocks on the day immediately preceding a federal holiday

A) are no different from any day.
B) are higher only if the holiday is a Monday.
C) are lower only the day before Christmas.
D) tend to be higher than average.

Question 54

Studies have shown that for historical betas to have a high degree of predictive ability, a portfolio should contain a minimum of the following securities:

A) 4 to 8
B) 10 to 20
C) 5 to 10
D) 25 to 40

Question 55

A firm that adds debt to its capital structure will tend to do the following to its stock beta:

A) decrease
B) minimize
C) increase
D) eliminate

Question 56

You have measured a company's beta for the last 10 years and it was .8. The adjusted beta to forecast the future would likely be

A) .7.
B) .9.
C) 1.0.
D) 1.1.

Question 57

A firm has 1,000 shares outstanding and plans to issue 200 additional shares. How many rights would a present shareholder need to purchase a new share?

A) 5
B) 2
C) 10
D) 8

Question 58

For a firm with debt capital, Beta(Firm) will be

A) smaller than Beta(debt).
B) larger than Beta(equity).
C) equal to Beta(debt).
D) equal to Beta (equity).

Question 59

The present market price is $80 per share; the subscription price is $60 per share. A shareholder needs 3 rights to purchase a new share. The value of a right is

A) $10.00.
B) $5.00.
C) $.50.
D) $1.00.

Question 60

Compared to other months on the NYSE, the return on stocks during January

A) is no different
B) averages 12% lower
C) averages 3% higher
D) averages 6% lower

Question 61

To amend a corporate charter requires approval by

A) stockholders only
B) management
C) the state
D) both the state and the stockholders

Question 62

A present shareholder maintains the privilege of maintaining proportionate ownership through the provision of

A) treasury stock.
B) preemptive rights.
C) cash dividends.
D) stock dividends

Question 63

Which of the following is NOT characteristic of an organized exchange?

A) it may be either national or regional
B) it functions as a primary market
C) previously issued stock are traded by investors
D) in foreign exchanges prices are quoted in local currency

Question 64

Firms that increase their dividend yield tend to

A) decrease their debt ratio.
B) decrease their Alpha.
C) increase their Beta.
D) decrease their Beta.

Question 65

Historically for NYSE stocks:

A) the highest returns are on Friday.
B) the lowest returns are on Monday.
C) the lowest returns are on Friday.
D) the highest returns are on Monday.

Question 66

If an investor buys an ATT prime, he

A) is entitled to the dividends, only.
B) purchased it on the New York Stock Exchange.
C) has no maturity time for the security.
D) is entitled to the price appreciation, only.

Question 67

"Dutch-auction" self-tender offers for shares typically

A) state a fixed repurchase price.
B) are done after a price decline.
C) result in a share price increase.
D) do not result in a long-term price increase.

Question 68

Historically, the private placement capital market has consisted primarily of

A) junk bonds
B) foreign bonds
C) fixed-income securities
D) preferred stocks

Question 69

A stock dividend or split causes the total value of the corporation to

A) remain the same
B) increase
C) decrease
D) increase at first, then decrease

Question 70

Historically, for NYSE stocks the highest yield is achieved during the month of

A) January.
B) April.
C) there is no unique month.
D) October.

Question 71

Studies of share price behavior related to stock splits show

A) typically abnormally high returns before the split, but not after the split.
B) abnormally low returns prior to the split announcement.
C) abnormally high returns after the split.
D) large increase in trading volume after the split.

Question 72

One of the purposes of the SEC in allowing shelf regulation was to

A) increase the number of public offerings
B) decrease the investment banker's involvement
C) reduce the costs of issuing securities
D) waive the disclosure process

Question 73

Which of the following are NOT associated with the public sale of a firm's securities?

A) a syndicate
B) an underwriter
C) the selling group
D) waivers of disclosure and SEC registration

Question 74

For the years 1926-1990, a small firm portfolio compared to the S&P 500 had

A) larger yield and less risk.
B) smaller yield and less risk.
C) the same characteristics.
D) larger yield and more risk.

Question 75

Choose the reason for which a corporation would not do a treasury stock purchase.

A) increase earnings per share
B) increase cash dividends per share
C) repel a takeover attempt
D) increase the stock price

Question 76

Choose the true statement about common stock:

A) must have full voting rights, only
B) must have full voting rights and require the same cash dividend paid to all
C) may have different classes of common stock for the same company
D) require the same level of cash dividend paid to all, only

Question 77

The intention of the SEC in adopting Rule 144A was to

A) increase the number of public offerings
B) add liquidity to the private placement market
C) increase the attractiveness of registered securities
D) reduce the number of privately placed securities

Question 78

A company's issuing a 100% stock dividend has the same share price effect as

A) a 1-for-2 split.
B) repurchasing 50% of shares for the treasury.
C) issuing a large cash dividend.
D) a 2-for-1 split.

Question 79

The date-of-record is Friday, May 15. The date-of-payment is Friday, May 29. You would receive the quarterly dividend if you purchase the stock on or before

A) Friday, May 15.
B) Friday, May 8.
C) Monday, May 11.
D) Friday, May 29.

Question 80

A reverse stock split

A) has the same price effect as a large stock dividend.
B) will reduce the company's Retained Earnings.
C) should increase the market price per share.
D) will decrease the par value per share.