Rule 9 of 14 in this unit2.1.1

2.1.1 Equity Securities

SIE outline 2.1.1

Arrears Are a Gate, Not a Debt

On cumulative preferred every unpaid stated dividend accrues as an arrear, and all arrears plus the current dividend must be paid before any dividend reaches the common. DGCL §151(c) is where the cumulative option comes from: dividends may be "cumulative or noncumulative". NOT "unpaid cumulative dividends are a debt of the company." Skipping a preferred dividend is not a default, creates no creditor claim, and does not put the holder on the debt half of the liquidation ladder.

The method for this kind of question
  1. 1h45m ÷ 80 items = 78.75 seconds per item. A classification item here should cost about 40.
  2. Stop hunting for a rule. Every fact in this lesson is a term in a document, so the stem must hand it to you.
  3. Arrears: count the missed years, then ADD the year now due. Dropping that last step is the classic error.
  4. Rights vs warrants: either axis classifies it. Weeks and below-market → right. Years and above-market → warrant.
  5. "Attached to the bonds" is a warrant, every time.
  6. An ADR trading in dollars does NOT remove currency risk: the dollar price is the foreign price after the exchange rate.
  7. Next: SIE Practice Quiz #5: Equity Securities, every answer explained.

Now answer

1 question on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

An affiliate of an issuer wants to sell shares under Rule 144's volume limitation. Which amount may she sell in a three-month period?

How sure are you?

Correct: A. Rule 144(e) sets the limit as the greatest of 1% of the class outstanding or the average weekly reported trading volume over the preceding four weeks.
B. The rule allows the greater of the two tests, not a flat 1% regardless of the other figure.
C. The rule uses the greater, not the lesser, of the two tests.
D. No flat 5% figure appears in Rule 144's volume limitation.

Unit: SIE outline 2.1.1

Next ruleFixed Payment, So the Price Moves

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