Series 6

Series 6 practice questions, page 7 of 13, with answer review and explanations.

Question 31

An ADR is:

  1. a bond issued by an American firm that is denominated in dollars, but is sold to foreign investors.
  2. a receipt designating ownership of shares of a foreign stock that are held in a trust.
  3. another name for bankers’ acceptances.
  4. a certificate of deposit offered by a foreign bank that is denominated in U.S. dollars.

Question 32

A preemptive right:

  1. is a call option that is usually attached to a bond as a sweetener.
  2. gives a bond owner the option to sell the bond back to the issuer at a pre-specified price.
  3. entitles its owner to buy shares of stock at a specified price within a specified time period in order to maintain his proportionate ownership in the firm.
  4. is a feature on some preferred stock issues that allows the preferred shareholders to exchange their preferred shares for shares of the common stock of the

Question 33

Mr. Investor has purchased 100 shares of the common stock of the Everyman Corporation. As such, which of the following is not a right that Mr. Investor has?

  1. the right to receive dividends, if declared
  2. the right to vote on the members of Everyman’s board of directors
  3. the right to vote on any proposed changes to the corporate bylaws
  4. the right to vote on the purchase of a major piece of property that Everyman is considering

Question 34

A feature that gives a bondholder or the owner of preferred stock of a corporation the option to exchange his security for shares of the common stock of the firm is called a:

  1. call feature.
  2. warrant.
  3. convertible feature.
  4. right.

Question 35

The stock of Southwest Airlines (LUV) is selling for $11.77 in mid-September. An October put on the stock is selling for $1.45 and gives the owner the right to sell the stock for $13.00 prior to its expiration. In this example, the option premium is:

  1. $13.00.
  2. $1.23.
  3. $1.45.
  4. $11.77.