SIE Exam Unit 2 Questions and Answers Already Passed
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Course
SIE Unit 2
Institution
SIE Unit 2
SIE Exam Unit 2 Questions and Answers
Already Passed
What rights are granted to holders of common stock?
Owners of common stock are entitled to vote in the election of the board of directors, have
some access to the company’s financial records, and possess preemptive rights to preserve th...
1 SIE Exam Unit 2 Questions and Answers Already Passed What rights are granted to holders of common stock? ✔✔Owners of common stock are entitled to vote in the election of the board of directors, have some access to the company’s financial records, and possess preemptive rights to preserve their proportional ownership in the corporation. What is the defini tion of a proxy in shareholder meetings? ✔✔A proxy is an individual authorized to vote on behalf of another shareholder, or a form that allows a shareholder to vote without attending the meeting in person. How do we describe capital growth or ca pital gains? ✔✔Capital growth, also known as capital gains, refers to the profit realized from selling an asset at a higher price than its purchase cost. What does limited liability mean for an investor? ✔✔Limited liability protects invest ors by ensuring their financial loss does not exceed the amount they invested in the company. 2 What is market risk in relation to common stock? ✔✔Market risk pertains to the likelihood that the value of the stock may decrease. What risk is a ssociated with a decrease or absence of dividend income for common stockholders? ✔✔This risk involves the potential for dividends to be reduced or stopped altogether if the company faces financial difficulties. What does it mean to have low prio rity at dissolution as a common stockholder? ✔✔In the event of bankruptcy, common stockholders receive payment after bondholders and preferred stockholders have been satisfied. What is meant by bankruptcy? ✔✔Bankruptcy occurs when an indiv idual or business is unable to meet their debt obligations. It can involve reorganization, where the entity continues operations while repaying debts, or liquidation, where assets are sold to cover debts. What happens during a reorganization bankruptc y? 3 ✔✔In a reorganization bankruptcy, the entity restructures its debt and continues to operate while adhering to a plan to repay some or all of its debts over time. What does liquidation bankruptcy involve? ✔✔Liquidation bankruptcy involves halting operations and selling off assets to pay creditors, with no continuation of the business. What is preferred stock? ✔✔Preferred stock is a type of equity that signifies ownership in a company and usuall y provides a fixed dividend. What is the usual par value of preferred stock? ✔✔The standard par value for preferred stock is $100, unless stated otherwise. What advantage does preferred stock offer in terms of dividend payments? ✔✔Preferred stockholders are entitled to receive dividend payments before common stockholders when dividends are declared. How does preferred stock rank in terms of claims on assets during liquidation? 4 ✔✔Preferred stockholders have a higher claim on the remaining assets after all debts have been paid, compared to common stockholders, in the event of bankruptcy. What is the risk related to purchasing power for holders of preferred stock? ✔✔Purchasing power risk means that the fixed income fr om preferred stock may lose value due to inflation, making it less effective in the future. How does interest rate risk affect preferred stock? ✔✔Interest rate risk involves a decline in the value of preferred stock as interest rates increase. Priority at Dissolution Risk (Preferred Stock) ✔✔Preferred shareholders are paid behind all creditors if a company declares bankruptcy. Types of Preferred Stock ✔✔Straight (Noncumulative) No special features beyond the stated dividend payment Cumulative Accrues payments due to its shareholders in the event dividends are reduced or suspended. Callable Preferred issued by corporations, which a company can buy back from investors at a stated price after a specified date.
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