AFM 121 FINAL EXAM QUESTIONS AND ANSWERS WITH
COMPLETE DETAILED SOLUTIONS 100% GUARANTEED PASS
What are preferred shares
Provides cash payments/dividends
These payments/dividends are fixed; hence, preferred shares are often viewed as fixed
income not equity
Most attractive to investor who wants a steady income
What is a stock split?
A company splits its shares thereby doubling (or tripling) its shares outstanding (in a 2
for 1 stock split, the share price is halved)
Note****A stock split does not increase a company's market capitlization
What happens on ex. dividend date?
You must purchase a stock BEFORE the ex. dividend date to receive the next dividend
payment. On this date, the stock price declines by the amount the dividend is being paid
is.
What happens on the record date?
Shareholders will receive the dividend amount.
What is a stock dividend?
,The company decides to issue a stock, rather than cash
What is a DRIP?
Divident Reinvestment Plan
The investor decides to receive stock, rather than a cash dividend
What is multi-voting shares?
Each share they own comes with it 10 votes instead of 1 share for 1 vote for restricted
voting shares
Do dividends receive a tax credit?
Yes
How much do capital gains get taxed?
50%
What is a stock's 'close'?
Last trading price of the day
What is a stock's 'change'?
Change from previous day's close
What is a stock's 'volume'?
# of shares traded during the period
Which type of dividends are paid first?
Preferred then common
Are dividend payments obligatory? (like interest payments)
No
How are preferreds valued?
, PV of future cash flows
Do preferreds have maturity date?
No
Why is yield so important?
If you receive $5 dividend for Co. A and a $2 dividend from Co. B, which is better?
If Co. A trades for $50 - dividend yield = $5/$50 = 10%
If Co. B trades for $10 - dividend yield = $2/$10 = 20%
What are convertible preferreds?
Convertible into common shares at a premium to the converted value of the common
shares
What is a convertible preferreds 'payback'?
# of years to pay back the % conversion premium
What are retractable preferreds?
Preferreds that can be sold back to the issuer by the investor
What are variable or floating rate preferreds?
Dividends vary with interest rates
What are preferreds with warrants?
Warrants (a security to buy the common shares at a fixed price) provide a sweetner for
investors
What are foreign-pay preferreds?
Dividends paid in foreign currency
What are auction preferreds?
COMPLETE DETAILED SOLUTIONS 100% GUARANTEED PASS
What are preferred shares
Provides cash payments/dividends
These payments/dividends are fixed; hence, preferred shares are often viewed as fixed
income not equity
Most attractive to investor who wants a steady income
What is a stock split?
A company splits its shares thereby doubling (or tripling) its shares outstanding (in a 2
for 1 stock split, the share price is halved)
Note****A stock split does not increase a company's market capitlization
What happens on ex. dividend date?
You must purchase a stock BEFORE the ex. dividend date to receive the next dividend
payment. On this date, the stock price declines by the amount the dividend is being paid
is.
What happens on the record date?
Shareholders will receive the dividend amount.
What is a stock dividend?
,The company decides to issue a stock, rather than cash
What is a DRIP?
Divident Reinvestment Plan
The investor decides to receive stock, rather than a cash dividend
What is multi-voting shares?
Each share they own comes with it 10 votes instead of 1 share for 1 vote for restricted
voting shares
Do dividends receive a tax credit?
Yes
How much do capital gains get taxed?
50%
What is a stock's 'close'?
Last trading price of the day
What is a stock's 'change'?
Change from previous day's close
What is a stock's 'volume'?
# of shares traded during the period
Which type of dividends are paid first?
Preferred then common
Are dividend payments obligatory? (like interest payments)
No
How are preferreds valued?
, PV of future cash flows
Do preferreds have maturity date?
No
Why is yield so important?
If you receive $5 dividend for Co. A and a $2 dividend from Co. B, which is better?
If Co. A trades for $50 - dividend yield = $5/$50 = 10%
If Co. B trades for $10 - dividend yield = $2/$10 = 20%
What are convertible preferreds?
Convertible into common shares at a premium to the converted value of the common
shares
What is a convertible preferreds 'payback'?
# of years to pay back the % conversion premium
What are retractable preferreds?
Preferreds that can be sold back to the issuer by the investor
What are variable or floating rate preferreds?
Dividends vary with interest rates
What are preferreds with warrants?
Warrants (a security to buy the common shares at a fixed price) provide a sweetner for
investors
What are foreign-pay preferreds?
Dividends paid in foreign currency
What are auction preferreds?
