SIE Exam - Knopman Marks Questions
and correct verified Answers
Common Stock - correct answer-✅Equity security that represents ownership. Gives investors a claim on
the company's assets and earnings, and offering the potential for growth (Capital Gains), and/or income
(Dividends)
get a book-entry form
in the event of bankruptcy or liquidation, common stockholders are paid last and have last priority
Authorized Stock - correct answer-✅the number of shares approved to sell by the state in which a
company is incorperated
Issued Stock - correct answer-✅the shares of authorized stock that are sold to the public
Outstanding Shares - correct answer-✅issued shares that are owned by stockholders
Par Value - correct answer-✅some states require that authorized shares be assigned a nominal value to
provide a minimum amount of legal capital to pay creditors -- this is par value
par value is often $1 or less, is set low because the stock cannot be issued for less than par value.
in some states, stock can be issued as no-par value
Ownership rights of common stock - correct answer-✅shareholder is entitled to legal rights of
ownership.
in addition to the right to transfer the ownership of shares, other substantial rights are associated with
stock ownership
Limited Liability - correct answer-✅shareholders cannot lose more money than their original
investment
Voting Rights - correct answer-✅Statutory Voting - allows shareholder to vote one time per share for
each seat on the board of directors. For example, if an investor owns 10 common shares and two board
seats are to be filled, the investor has up to 10 votes to cast for each of two directors seeking position
Cumulative Voting - allows shareholder to pool votes together and then allocate them as desired. using
the example above, the shareholder has a total of 20 votes for the 10 shares that are held (10 votes for
each of the two seats). the shareholder can cast 20 votes for one candidate / 15 for one candidate and 5
for another or any other allocation preferred by the investor
if the shareholder cannot be present, votes can be cast by proxy through an absentee ballot
Proxy Statement - correct answer-✅SEC-required disclosures that are sent to solicit shareholder votes
for the election of corporate directors at annual meetings and for material corporate events, such as
mergers
Capital Gains - correct answer-✅the buying of stock at one price and selling it at a higher price
investors only pay taxes on realized capital gains, which is when an investor sells a security for a profit.
unrealized capital gains (increase of the value of the security) is not taxed until the investor actually sells
it. these are sometimes referred to as paper gains and have no immediate tax impact
Dividends - correct answer-✅a share of the corporation's profits; if they are to be paid, a specified
amount is allocated for each outstanding share.
, when the stock market declines, holders of dividend-paying stocks still receive income, which may attract
income-seeking investors even in a poor market
distributions of a company's profits to shareholders; they are generally paid in cash or in additional
shares of stock and must be declared by the company's board of directors
Rights Offering - correct answer-✅gives shareholders the right to acquire additional shares,
proportionate to their current holdings at a stated price
common shareholders are given preemptive rights or subscription rights -- investors are given a short
timeframe to decide if they want to exercise these rights
this allows owners to have the option of maintaining their proportionate ownership interest in the
company and prevents dilution (the reduction of their ownership interest)
The exercise price of rights is always below the current market price, at the time rights are issued
warrant - correct answer-✅entitles the holder to buy the issuer's stock at a specified price for a period
of time
is a long term instrument -- generally 5 years or more in term, and the exercise price of the warrant is
usually higher than the stock price at time of issue. warrants become exercisable only if the stock
appreciates over the long term
KNOPMAN NOTE about Claims and Warrants - correct answer-✅- rights and warrants may trade as
independent securities in the secondary market
- warrants typically remain outstanding longer than rights
- warrants are generally not issued with intrinsic value, meaning they are issued with an exercise price
above the current market value of the stock. they are not valuable until the stock's price increases
- the market value of a warrant is connected to the value of the underlying stock
- warrants are typically issued by a company in conjunction with another security to make that other
security more attractive to investors. Unlike preemptive rights, warrants do not prevent dilution
Types of Common Stock - correct answer-✅Blue chip stocks - well known companies (on DOW, NYSE,
NASDAQ -- Pfizer, Coca-Cola, IBM). B/c of their size they offer modest growth potential but produce a
steady income stream because they generally pay a constant dividend
income stocks - produce income typically in the form of dividends for their investors. generally
companies that operate in mature industries and have low investments in research and development.
Utility stocks pay steady income. REITs also pay regular dividends
Cyclical stocks - mirror the economy, strengthen when the economy is growing and declining in value as
economy contracts. These are like car companies, high ticket consumer items, companies that supply
capital equipment
and correct verified Answers
Common Stock - correct answer-✅Equity security that represents ownership. Gives investors a claim on
the company's assets and earnings, and offering the potential for growth (Capital Gains), and/or income
(Dividends)
get a book-entry form
in the event of bankruptcy or liquidation, common stockholders are paid last and have last priority
Authorized Stock - correct answer-✅the number of shares approved to sell by the state in which a
company is incorperated
Issued Stock - correct answer-✅the shares of authorized stock that are sold to the public
Outstanding Shares - correct answer-✅issued shares that are owned by stockholders
Par Value - correct answer-✅some states require that authorized shares be assigned a nominal value to
provide a minimum amount of legal capital to pay creditors -- this is par value
par value is often $1 or less, is set low because the stock cannot be issued for less than par value.
in some states, stock can be issued as no-par value
Ownership rights of common stock - correct answer-✅shareholder is entitled to legal rights of
ownership.
in addition to the right to transfer the ownership of shares, other substantial rights are associated with
stock ownership
Limited Liability - correct answer-✅shareholders cannot lose more money than their original
investment
Voting Rights - correct answer-✅Statutory Voting - allows shareholder to vote one time per share for
each seat on the board of directors. For example, if an investor owns 10 common shares and two board
seats are to be filled, the investor has up to 10 votes to cast for each of two directors seeking position
Cumulative Voting - allows shareholder to pool votes together and then allocate them as desired. using
the example above, the shareholder has a total of 20 votes for the 10 shares that are held (10 votes for
each of the two seats). the shareholder can cast 20 votes for one candidate / 15 for one candidate and 5
for another or any other allocation preferred by the investor
if the shareholder cannot be present, votes can be cast by proxy through an absentee ballot
Proxy Statement - correct answer-✅SEC-required disclosures that are sent to solicit shareholder votes
for the election of corporate directors at annual meetings and for material corporate events, such as
mergers
Capital Gains - correct answer-✅the buying of stock at one price and selling it at a higher price
investors only pay taxes on realized capital gains, which is when an investor sells a security for a profit.
unrealized capital gains (increase of the value of the security) is not taxed until the investor actually sells
it. these are sometimes referred to as paper gains and have no immediate tax impact
Dividends - correct answer-✅a share of the corporation's profits; if they are to be paid, a specified
amount is allocated for each outstanding share.
, when the stock market declines, holders of dividend-paying stocks still receive income, which may attract
income-seeking investors even in a poor market
distributions of a company's profits to shareholders; they are generally paid in cash or in additional
shares of stock and must be declared by the company's board of directors
Rights Offering - correct answer-✅gives shareholders the right to acquire additional shares,
proportionate to their current holdings at a stated price
common shareholders are given preemptive rights or subscription rights -- investors are given a short
timeframe to decide if they want to exercise these rights
this allows owners to have the option of maintaining their proportionate ownership interest in the
company and prevents dilution (the reduction of their ownership interest)
The exercise price of rights is always below the current market price, at the time rights are issued
warrant - correct answer-✅entitles the holder to buy the issuer's stock at a specified price for a period
of time
is a long term instrument -- generally 5 years or more in term, and the exercise price of the warrant is
usually higher than the stock price at time of issue. warrants become exercisable only if the stock
appreciates over the long term
KNOPMAN NOTE about Claims and Warrants - correct answer-✅- rights and warrants may trade as
independent securities in the secondary market
- warrants typically remain outstanding longer than rights
- warrants are generally not issued with intrinsic value, meaning they are issued with an exercise price
above the current market value of the stock. they are not valuable until the stock's price increases
- the market value of a warrant is connected to the value of the underlying stock
- warrants are typically issued by a company in conjunction with another security to make that other
security more attractive to investors. Unlike preemptive rights, warrants do not prevent dilution
Types of Common Stock - correct answer-✅Blue chip stocks - well known companies (on DOW, NYSE,
NASDAQ -- Pfizer, Coca-Cola, IBM). B/c of their size they offer modest growth potential but produce a
steady income stream because they generally pay a constant dividend
income stocks - produce income typically in the form of dividends for their investors. generally
companies that operate in mature industries and have low investments in research and development.
Utility stocks pay steady income. REITs also pay regular dividends
Cyclical stocks - mirror the economy, strengthen when the economy is growing and declining in value as
economy contracts. These are like car companies, high ticket consumer items, companies that supply
capital equipment
