Chapter 10 Equity Securities

A vibrant infographic depicting equity securities, including common and preferred stocks, voting rights, and a diverse group of investors analyzing market trends.

Mastering Equity Securities Quiz

Test your knowledge on the fundamentals of equity securities with our engaging quiz! This quiz covers essential concepts related to common and preferred shares, voting rights, dividends, and corporate actions.

Key Features:

Multiple choice questions
Assess your understanding of equity securities
Perfect for finance students and professionals

21 Questions5 MinutesCreated by InvestingWizard427

Which of the following securities most likely provides voting rights to investors?

Common shares

Preferred shares

Depositary receipts

The right to elect members of the board of directors of a company belongs to that company’s

Senior management

Common shareholders

Preferred shareholders

Which of the following is most likely an advantage of owning common stock?

Low risk

Finite life

Limited liability

The key difference between cumulative preferred stock and non-cumulative preferred stock relates to:

Voting rights.

The treatment of missed dividends

The company’s ability to buy back the preferred shares.

Compared with a preferred shareholder, a common shareholder most likely has

Voting rights

Limited liability.

Cash flow rights

All else being equal, the fixed coupon rate on a convertible bond compared with a straight bond is most likely:

Lower

The same.

Higher

Compared with preferred shareholders, the ranking of common shareholders in the priority of claims on the company’s net assets upon liquidation is:

Equal

Lower.

Higher.

A security representing an economic interest in a foreign company that trades like a common stock on a local stock exchange is most likely a:

Warrant.

Convertible bond.

Depositary receipt.

Depositary receipts are issued by:

Governments.

Financial institutions

The company whose shares are represented by the depositary receipts.

If the price of a company’s common shares increases significantly, the conversion value of a convertible bond issued by that company most likely:

Increases.

Decreases.

Remains unchanged

Stock options issued by a company to its employees as a form of compensation are an example of:

Warrants

Convertible bonds.

Depositary receipts.

Compared with common shares, an investment in preferred shares is most likely to be:

Less risky.

More risky

Equally risky

Compared with the expected return on an investment in preferred shares, the expected return on an investment in common shares is most likely to be:

Equal.

Lower

Higher.

The discounted cash flow approach to valuation of a company’s common shares most likely considers the:

Expected dividends on the shares

Current value of the company’s assets.

Price-to-earnings ratios of comparable companies.

The approach to valuing common shares that uses price multiples of other comparable, publicly traded companies best describes:

Relative valuation

Asset-based valuation

Discounted cash flow valuation

A company that needs to raise capital in a public market for the first time would most likely:

Repurchase shares

Conduct an initial public offering.

Conduct a seasoned equity offering.

The process of a publicly traded company raising additional capital by selling new shares to the public best describes a:

Stock dividend

Share repurchase

Seasoned equity offering.

Which of the following corporate actions would decrease a company’s number of outstanding shares

Share repurchase

Exercise of warrants

Seasoned equity offering

After a company conducts a stock split, a common shareholder’s proportional ownership will most likely:

Increase

Decrease.

Remain unchanged.

The process of a company creating a new company from an existing subsidiary best describes a:

Spinoff.

Stock split.

Reverse stock split

The corporate action most likely taken to mitigate the effects of exercised warrants is:

A stock dividend.

An issuance of new shares.

A share repurchase program.

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Chapter 10 Equity Securities

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