Series 99 Corporate Actions & Reorganizations 1 — Questions and Answers
Question 1: Which of the following best describes a mandatory corporate action?
- A tender offer requiring shareholder election
- A rights offering where shareholders choose to subscribe
- A stock split that automatically affects all shareholders (Correct answer)
- A dividend reinvestment plan opted into by shareholders
Correct answer: A stock split that automatically affects all shareholders
A mandatory corporate action such as a stock split is automatically applied to all shareholders without requiring any election or decision.
Question 2: What is the 'record date' in the context of a corporate action?
- The date the corporate action is announced to the public
- The date by which an investor must own shares to be entitled to the benefit (Correct answer)
- The date on which payment or distribution actually occurs
- The date trading in the security is halted pending the action
Correct answer: The date by which an investor must own shares to be entitled to the benefit
The record date is the cutoff date established by the company to determine which shareholders are entitled to receive a dividend or corporate action benefit.
Question 3: In a 3-for-1 stock split, an investor holding 150 shares at $90 each would have after the split:
- 50 shares at $270 each
- 450 shares at $30 each (Correct answer)
- 150 shares at $30 each
- 300 shares at $45 each
Correct answer: 450 shares at $30 each
In a 3-for-1 split, the number of shares triples and the price per share is divided by 3, so 150 × 3 = 450 shares at $90 ÷ 3 = $30 each.
Question 4: What is the 'ex-dividend date'?
- The date on which the dividend payment is made to shareholders
- The date after which buyers of the stock will not receive the declared dividend (Correct answer)
- The date on which the company announces its dividend
- The date the dividend is recorded in the company's books
Correct answer: The date after which buyers of the stock will not receive the declared dividend
The ex-dividend date is the first date on which a stock trades without the right to receive the upcoming dividend; buyers on or after this date do not receive the dividend.
Question 5: A reverse stock split is most likely used by a company to:
- Increase the number of outstanding shares to raise capital
- Reduce the share price to attract more retail investors
- Raise the share price to meet exchange listing requirements (Correct answer)
- Pay dividends to shareholders without using cash
Correct answer: Raise the share price to meet exchange listing requirements
A reverse stock split consolidates shares into fewer, higher-priced shares, which is commonly done to meet minimum share price requirements for continued exchange listing.
Question 6: Which of the following corporate actions is considered a 'voluntary' action?
- Cash dividend
- Stock split
- Reverse stock split
- Rights offering (Correct answer)
Correct answer: Rights offering
A rights offering is voluntary because existing shareholders must choose whether to exercise their rights, let them expire, or sell them; participation is not automatic.
Question 7: What is a 'spin-off' in the context of corporate reorganizations?
- A company buying back its own shares from the open market
- A company distributing shares of a subsidiary to its existing shareholders (Correct answer)
- A company merging with a competitor to form a new entity
- A company issuing new shares to raise additional capital
Correct answer: A company distributing shares of a subsidiary to its existing shareholders
A spin-off occurs when a company creates an independent company by distributing shares of a newly formed or existing subsidiary to its current shareholders as a dividend.
Series 99 Corporate Actions & Reorganizations 1
Which of the following best describes a mandatory corporate action?