SIE Equity Securities 1 — Questions and Answers
Question 1: Which type of stock gives shareholders priority over common stockholders when dividends are distributed?
- Common stock
- Preferred stock (Correct answer)
- Convertible bonds
- Warrants
Correct answer: Preferred stock
Preferred stockholders receive dividends before common stockholders and have priority in liquidation.
Question 2: What is the term for a corporate action that increases the number of outstanding shares while reducing the price per share proportionally?
- Reverse stock split
- Stock dividend
- Forward stock split (Correct answer)
- Rights offering
Correct answer: Forward stock split
A forward stock split increases share count and lowers the price per share, keeping total market value the same.
Question 3: An investor who believes a stock's price will decline would most likely take which position?
- Long position
- Short position (Correct answer)
- Covered call
- Long put
Correct answer: Short position
A short position involves selling borrowed shares with the expectation of buying them back at a lower price.
Question 4: What are American Depositary Receipts (ADRs)?
- US government bonds traded abroad
- Foreign company shares traded on US exchanges in US dollars (Correct answer)
- Receipts for domestic warehouse inventory
- Municipal bond certificates
Correct answer: Foreign company shares traded on US exchanges in US dollars
ADRs represent shares of foreign companies and are traded on US exchanges denominated in US dollars.
Question 5: Which of the following best describes the ex-dividend date?
- The date the dividend is paid to shareholders
- The date the board declares the dividend
- The first date a buyer of stock is NOT entitled to the declared dividend (Correct answer)
- The date the shareholder record list is finalized
Correct answer: The first date a buyer of stock is NOT entitled to the declared dividend
Purchasing stock on or after the ex-dividend date means the buyer will not receive the upcoming dividend.
Question 6: What does the term 'market capitalization' refer to?
- The total value of a company's debt
- The total value of a company's outstanding shares (Correct answer)
- The company's annual revenue
- The book value of a company's assets
Correct answer: The total value of a company's outstanding shares
Market capitalization equals the current share price multiplied by the total number of outstanding shares.
SIE Equity Securities 1
Which type of stock gives shareholders priority over common stockholders when dividends are distributed?