Mastery Exam #1 UPDATED ACTUAL Questions and CORRECT Answers
A corporate bond was issued on Jan 1, 2010, that matures
on Jan 1, 2030. The trust indenture allows the corporation
The best answer is A.
to call the bond starting in 2020 at a price equaling 100
If the bond is called on Jan 1, 2026, it has 4 years left to
1/2 plus an additional 1/4 point premium for every 6
maturity. This is the same as 8 - six month periods. For
month period remaining until maturity. If the bond is
each six month period prior to maturity that the bond is
called on Jan 1, 2026, the redemption price will be:
called, 1/4 point is added to the call price (total equals 2
A.102 1/2
points). Since the call price is 100 1/2 plus the additional
B.102
premium of 2 points, the total call price is 102 1/2.
C.101 1/2
D.100 1/2
The best answer is D.
What term would apply to Treasury Stock?
A. Negotiable Treasury stock consists of shares that have been repur-
B. Outstanding chased and "retired," so Treasury stock does not receive
C. Voting dividends and has no voting rights. Par value is the term
D. Par Value that applies to all stock, whether it is Authorized, Issued,
Treasury, or Outstanding.
An investor has 500 shares and is voting for 3 open board
seats. Which statement is correct if the election employs
the statutory voting method?
A. Statutory voting gives the shareholder a proportionate
voting weight and allows her to cast a maximum of 500 The best answer is A.
votes for a favored director. Statutory voting is also know as proportionate voting. Un-
B. Statutory voting gives the shareholder a proportionate der the statutory method, the number of shares held (500)
voting weight and allows her to cast a maximum of 1500 is the number of votes that the shareholder can apply to
votes for a favored director. each directorship.
C. Statutory voting gives the shareholder a disproportion-
ate voting weight and allows her to cast a maximum of
500 votes for a favored director.
D. Statutory voting gives the shareholder a disproportion-
, ate voting weight and allows her to cast a maximum of
1500 votes for a favored director.
The best answer is D.
A company that has been growing rapidly announces that Another question that is more annoying than diflcult.
it is splitting its stock 3:2 and increasing its cash dividend When the stock was trading at $60, it was paying an annual
by 20%. Prior to the announcement, the stock was trading cash dividend of 10% of $60 = $6.00 per share. After
at $60 and the dividend yield was 10%. What will be the the 3:2 split, for every 2 shares held, there will now be 3
next dividend paid per share? shares. This is the same as 1.5:1. The new share price will
A. $.90 be $.5 = $40. The new annual dividend amount per
B. $1.00 share before the increase will be $6..5 = $4.00. If this
C. $1.10 dividend is increased by 20%, the new annual rate will be
D. $1.20 $4.80, and the new quarterly dividend payment per share
will be $4. = $1.20
Dividends on preferred stock may only be paid in: The best answer is C.
A. Common shares of another issuer Dividends on preferred stock are paid solely in cash. Com-
B. Common shares of the same issuer mon stock dividends may be paid in cash, stock, stock
C. Cash of another company (i.e. subsidiary), or products of that
D. Preferred stock of the same issuer company.
A middle-aged widowed customer has an investment ob- The best answer is D.
jective of stable income and wants minimal market and Variable rate preferred has a dividend rate that is tied to a
liquidity risk. What type of preferred stock would be the market rate of interest, and the dividend rate varies as that
BEST recommendation? rate varies. When market interest rates rise, the dividend
A. Participating preferred rate rises; when market interest rates fall, the dividend rate
B. Convertible preferred falls. Because the dividend rate varies, the price of the
C. Straight preferred security stays right at par value and has minimal market
D. Variable rate preferred risk.
A corporation has issued $100 par, 8% convertible pre-
If the preferred shares are tendered at the call price, the
ferred stock, callable at par. The preferred is convertible
owner receives $100 per share. Since par ($100) was paid
into 1.4 shares of common stock. Currently, the preferred
for each share, there is no profit. If the preferred shares
stock is trading at $104 while the common stock is trading
, at $71.50. The corporation calls the preferred stock at par.
are sold at the current market price of $104, the owner
To realize the largest profit, a customer holding 100 shares
has a profit of $4 per share. Since each preferred share is
of preferred stock should:
convertible into 1.4 common shares, the short sale (sale
of borrowed shares) of 1.4 common shares will yield 1.4 x
A. tender the preferred shares at the call price
$71.50 = $100.10. The preferred can then be converted to
B. sell the preferred shares at the current market price
common to cover the borrowed short position. This results
C. sell short the common stock and convert the preferred
in a $.10 profit per share. Thus, selling the preferred is the
for delivery to cover the short
best choice.
D. continue to hold the preferred shares
A customer buys 100 shares of preferred at $51 per share.
The par value is $50. The dividend rate is 8%. Each divi-
dend payment would be: The best answer is A.
The annual rate is 8% X $50 par value = $4 per share X
A$200 100 shares = $400. Since preferred dividends are paid
B$400 semi-annually, each payment is for $200.
C$600
D$800
The best answer is D.
An American Depositary Receipt is a foreign security that
All of the following statements are true regarding the
is held in a foreign branch of a U.S. bank. The bank is-
trading of ADRs EXCEPT:
sues receipts against these shares, and the receipts are
A. ADRs are traded on the New York Stock Exchange
registered in the United States as securities and are listed
B. ADRs are traded on the NASDAQ Stock Market
and traded on U.S. stock exchanges, including the NYSE,
C. ADRs are traded on the American Stock Exchange
AMEX (now renamed the NYSE American) and NASDAQ
D. ADRs are traded on the Chicago Board Options Ex-
stock markets. Note that only options trade on the Chicago
change
Board Options Exchange (CBOE) - neither stocks nor ADRs
trade in this market.
A corporation has issued 8% AA rated sinking fund deben- The best answer is C.
tures at par. Three years later, similar issues are being The bond was issued with a coupon of 8%. Currently, yield
offered in the primary market at 7%. Which are TRUE for a similar issue is 7%. Therefore, interest rates have
statements about the outstanding 8% issue? fallen subsequent to the issuance of the bond; or the
A corporate bond was issued on Jan 1, 2010, that matures
on Jan 1, 2030. The trust indenture allows the corporation
The best answer is A.
to call the bond starting in 2020 at a price equaling 100
If the bond is called on Jan 1, 2026, it has 4 years left to
1/2 plus an additional 1/4 point premium for every 6
maturity. This is the same as 8 - six month periods. For
month period remaining until maturity. If the bond is
each six month period prior to maturity that the bond is
called on Jan 1, 2026, the redemption price will be:
called, 1/4 point is added to the call price (total equals 2
A.102 1/2
points). Since the call price is 100 1/2 plus the additional
B.102
premium of 2 points, the total call price is 102 1/2.
C.101 1/2
D.100 1/2
The best answer is D.
What term would apply to Treasury Stock?
A. Negotiable Treasury stock consists of shares that have been repur-
B. Outstanding chased and "retired," so Treasury stock does not receive
C. Voting dividends and has no voting rights. Par value is the term
D. Par Value that applies to all stock, whether it is Authorized, Issued,
Treasury, or Outstanding.
An investor has 500 shares and is voting for 3 open board
seats. Which statement is correct if the election employs
the statutory voting method?
A. Statutory voting gives the shareholder a proportionate
voting weight and allows her to cast a maximum of 500 The best answer is A.
votes for a favored director. Statutory voting is also know as proportionate voting. Un-
B. Statutory voting gives the shareholder a proportionate der the statutory method, the number of shares held (500)
voting weight and allows her to cast a maximum of 1500 is the number of votes that the shareholder can apply to
votes for a favored director. each directorship.
C. Statutory voting gives the shareholder a disproportion-
ate voting weight and allows her to cast a maximum of
500 votes for a favored director.
D. Statutory voting gives the shareholder a disproportion-
, ate voting weight and allows her to cast a maximum of
1500 votes for a favored director.
The best answer is D.
A company that has been growing rapidly announces that Another question that is more annoying than diflcult.
it is splitting its stock 3:2 and increasing its cash dividend When the stock was trading at $60, it was paying an annual
by 20%. Prior to the announcement, the stock was trading cash dividend of 10% of $60 = $6.00 per share. After
at $60 and the dividend yield was 10%. What will be the the 3:2 split, for every 2 shares held, there will now be 3
next dividend paid per share? shares. This is the same as 1.5:1. The new share price will
A. $.90 be $.5 = $40. The new annual dividend amount per
B. $1.00 share before the increase will be $6..5 = $4.00. If this
C. $1.10 dividend is increased by 20%, the new annual rate will be
D. $1.20 $4.80, and the new quarterly dividend payment per share
will be $4. = $1.20
Dividends on preferred stock may only be paid in: The best answer is C.
A. Common shares of another issuer Dividends on preferred stock are paid solely in cash. Com-
B. Common shares of the same issuer mon stock dividends may be paid in cash, stock, stock
C. Cash of another company (i.e. subsidiary), or products of that
D. Preferred stock of the same issuer company.
A middle-aged widowed customer has an investment ob- The best answer is D.
jective of stable income and wants minimal market and Variable rate preferred has a dividend rate that is tied to a
liquidity risk. What type of preferred stock would be the market rate of interest, and the dividend rate varies as that
BEST recommendation? rate varies. When market interest rates rise, the dividend
A. Participating preferred rate rises; when market interest rates fall, the dividend rate
B. Convertible preferred falls. Because the dividend rate varies, the price of the
C. Straight preferred security stays right at par value and has minimal market
D. Variable rate preferred risk.
A corporation has issued $100 par, 8% convertible pre-
If the preferred shares are tendered at the call price, the
ferred stock, callable at par. The preferred is convertible
owner receives $100 per share. Since par ($100) was paid
into 1.4 shares of common stock. Currently, the preferred
for each share, there is no profit. If the preferred shares
stock is trading at $104 while the common stock is trading
, at $71.50. The corporation calls the preferred stock at par.
are sold at the current market price of $104, the owner
To realize the largest profit, a customer holding 100 shares
has a profit of $4 per share. Since each preferred share is
of preferred stock should:
convertible into 1.4 common shares, the short sale (sale
of borrowed shares) of 1.4 common shares will yield 1.4 x
A. tender the preferred shares at the call price
$71.50 = $100.10. The preferred can then be converted to
B. sell the preferred shares at the current market price
common to cover the borrowed short position. This results
C. sell short the common stock and convert the preferred
in a $.10 profit per share. Thus, selling the preferred is the
for delivery to cover the short
best choice.
D. continue to hold the preferred shares
A customer buys 100 shares of preferred at $51 per share.
The par value is $50. The dividend rate is 8%. Each divi-
dend payment would be: The best answer is A.
The annual rate is 8% X $50 par value = $4 per share X
A$200 100 shares = $400. Since preferred dividends are paid
B$400 semi-annually, each payment is for $200.
C$600
D$800
The best answer is D.
An American Depositary Receipt is a foreign security that
All of the following statements are true regarding the
is held in a foreign branch of a U.S. bank. The bank is-
trading of ADRs EXCEPT:
sues receipts against these shares, and the receipts are
A. ADRs are traded on the New York Stock Exchange
registered in the United States as securities and are listed
B. ADRs are traded on the NASDAQ Stock Market
and traded on U.S. stock exchanges, including the NYSE,
C. ADRs are traded on the American Stock Exchange
AMEX (now renamed the NYSE American) and NASDAQ
D. ADRs are traded on the Chicago Board Options Ex-
stock markets. Note that only options trade on the Chicago
change
Board Options Exchange (CBOE) - neither stocks nor ADRs
trade in this market.
A corporation has issued 8% AA rated sinking fund deben- The best answer is C.
tures at par. Three years later, similar issues are being The bond was issued with a coupon of 8%. Currently, yield
offered in the primary market at 7%. Which are TRUE for a similar issue is 7%. Therefore, interest rates have
statements about the outstanding 8% issue? fallen subsequent to the issuance of the bond; or the
