Common stocks for which of the following industries are most likely to decline in value when interest
rates rise?
D
Explanation:
public utility companies. Interest rates most affect the companies with the greatest amount of debt.
Public utility companies are highly leveraged. Hence, they most likely incur the largest effect of rising
interest rates.
Convertible preferred stock has all of the following characteristics except:
C
Explanation:
a requirement for shareholders to always accept the call price when called. All of the other
statements are true “except” this one. Convertible preferred shareholders have a n opportunity to
convert to common stock. There is no forced call price.
Bubba buys a 5% bond that matures in 15 years with a 5.10 basis. How much did he pay for the
bond?
B
Explanation:
98.96. A calculator is not required for this. Even Bubba knows the bond is obviously trading at a slight
discount by yielding 5.10% instead of the coupon rate of 5%. If the yield was the same as the coupon
rate, the price is 100.00.
Bonds are most often quoted as a percentage of:
A
Explanation:
face value. The price is 100.00 if the yield is the same as the coupon rate. A price of less than 100.00
means the yield is higher than the coupon rate. A price of more than 100.00 means the yield is lower
than the coupon rate. The prices are a percentage of 100.00. However, treasury bonds and municipal
bonds are not quoted in this way.
Which of the following is a right for shareholders of common stock?
B
Explanation:
the right to vote about important matters of the company. Shareholders have no expectation of stock
price increase or dividends. They are entitled to receive dividends only if the board of directors
declares them.
Who owns a corporation?
C
Explanation:
the holders of common stock and the holders of preferred stock. The holders of all classes of stock
are the owners. Each stock class has separate privileges, but all represent ownership. Even if the
government is an owner, it holds shares of stock.
Which of the following is true of treasury stock?
D
Explanation:
it is stock that has been reacquired by the issuer. Treasury stock has no voting rights and is not
entitled to receive dividends. The shares have been issued but are no longer outstanding in the
market.
Bubba decides to buy equity securities. Which of the following statements is always true about what
Bubba is buying?
D
Explanation:
they are not secured by collateral. Equity is ownership, which has no collateral security…or any other
kind of security such as a guaranteed return, maturity, or marketability.
Which of the following securities provides the longest term of option privilege?
C
Explanation:
warrants. All of the others always have fixed maturity dates. Warrants often have no finite life and, if
they do, it is a very long time.
A company may pay a declared dividend in which of the following ways:
D
Explanation:
all of the above. Dividends can be paid in all of these ways. They can also be paid with treasury stock
or authorized but unissued stock.