Understanding Equity Securities: Key Characteristics and Risks
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Key Characteristics of Common Equity
Which of the following is not a characteristic of common equity?
The company is obligated to make periodic dividend payments.
Statutory Voting Explained
The type of equity voting right that grants one vote for each share of equity owned is referred to as statutory voting.
Understanding Preference Shares
All of the following are characteristics of preference shares except:
- They are either callable or putable.
- They receive an additional dividend exceeding a predetermined level.
Private Equity Securities: Market-Determined Quoted Prices
Which of the following statements about private equity securities is incorrect?
They have market-determined quoted prices.
Venture Capital Investments: Mezzanine Financing
Venture capital investments provide mezzanine financing.
Private vs. Public Equity Firms: Regulatory and Investor
Which of the following statements most accurately describes one difference between private and public equity firms?
Private equity firms have fewer regulatory and investor reporting requirements.
Unsponsored Depository Receipts: Voting Rights
When investing in unsponsored depository receipts, the voting rights to the shares in the trust belong to the depository bank.
Currency Fluctuations and ETF Returns
If a US-based investor purchases a euro-denominated ETF and the euro subsequently depreciates in value relative to the dollar, the investor will have a total return that is lower than the ETF's total return.
Measuring Equity Security Risk
Which of the following is incorrect about the risk of an equity security?
The risk of an equity security is measured using the standard deviations of its dividends.
Least Risky Equity Security for Investors
From an investor's point of view, which of the following equity securities is the least risky?
Putable shares.
Reasons for Issuing Equity Securities
Which of the following is least likely to be a reason for a company to issue equity securities on the primary market?
To increase return on equity.
Primary Goals of Raising Equity Capital
Which of the following is not a primary goal of raising equity capital?
To ensure that the company continues as a going concern.
Company's Book Value Accuracy
Which of the following statements is most accurate in describing a company's book value?
Book value is usually equal to the company's market value.
Company's Market Value Accuracy
Which of the following statements is least accurate in describing a company's market value?
Management decisions do not influence the company's market value.
Factors Influencing Return on Equity
Holding all other factors constant, which of the following situations will most likely lead to an increase in a company's return on equity?
The company issues debt to repurchase outstanding shares.
Estimating the Cost of Equity
Which of the following measures is the most difficult to estimate?
Cost of equity.
Cost of Equity as a Proxy for Investors' Minimum Return
A company's cost of equity is often used as a proxy for investors' minimum required rate of return.