Rule 10 of 14 in this unit2.1.1

2.1.1 Equity Securities

SIE outline 2.1.1

Fixed Payment, So the Price Moves

A preferred dividend is fixed by the certificate, so it cannot rise when market yields rise. The only variable left is the price, which falls until the yield is competitive: the same inverse relationship a bond has, for the same reason. DGCL §151(a) also permits a class to have "voting powers, full or limited, or no voting powers", which is why most preferred does not vote. NOT "preferred is safer than common, so its price is steadier." It is senior on dividends and on dissolution, and it is MORE interest-rate sensitive than common, because a fixed payment is exactly what rate moves punish.

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

A company officer who directly controls the issuer buys additional shares of her own company on the open market. What has she acquired, under Rule 144's own vocabulary?

How sure are you?

Correct: A. Rule 144 defines an affiliate as a person who controls, is controlled by, or is under common control with the issuer; ordinary shares bought openly by an affiliate are control stock.
B. 'Restricted' describes shares acquired in an unregistered private sale; these were bought openly on the market.
C. Treasury stock belongs to the corporation itself, not to an individual officer.
D. These shares were registered when originally issued; they are not unregistered.

Unit: SIE outline 2.1.1

Next ruleOne Statute, Both Instruments

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