Stock Transaction Settlement Dates

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Questions and Answers

What is the settlement date for a stock transaction made on Monday, June 13?

Thursday, June 16

Monday, June 15

Tuesday, June 14 (correct)

Wednesday, June 14

Dividends reinvested through a dividend reinvestment plan are treated as what for tax purposes?

Non-taxable income

Tax-free reinvestments

Capital gains

Ordinary cash dividends (correct)

What trading status is applicable for stock traded on Thursday, June 9?

Cum dividend (correct)

Ex-dividend

Deferred payment

Ineligible for dividends

When are share purchases typically made in dividend reinvestment plans?

On the open market under a trustee's direction Signup and view all the answers

Which date would not be considered for the settlement of a stock transaction conducted on Friday, June 10?

Saturday, June 11 Signup and view all the answers

What unique feature do some dividend reinvestment plans include for participating shareholders?

Periodic statements showing shares bought Signup and view all the answers

What is the effect of weekends on the settlement date of stock transactions?

Settlements are delayed until the next trading day Signup and view all the answers

If a stock is traded on Tuesday, June 14, what is its status in terms of dividends?

Ex-dividend Signup and view all the answers

What is one way major Canadian stock exchanges communicate dividend announcements?

In daily news releases Signup and view all the answers

What distinguishes the CAC 40 Index from other stock indexes?

It is calculated on a market capitalization basis. Signup and view all the answers

Which index specifically consists of the largest companies in Switzerland?

Swiss Market Index Signup and view all the answers

What is a key feature of the MSCI Canada ESG Leaders Index compared to the broader MSCI Canada Index?

It has consistently outperformed the broader MSCI Canada Index since 2007. Signup and view all the answers

Which of the following accurately describes the MSCI World ESG Leaders Index?

It is designed for investors seeking a broad sustainability benchmark. Signup and view all the answers

In the context of global interest in stock markets, which countries have become focal points over the last 30 years?

China, India, Turkey Signup and view all the answers

What common characteristic is shared by companies in environmental, social, and governance indexes?

They are deemed strong ESG performers by a third-party research firm. Signup and view all the answers

What is the main advantage of a dividend reinvestment plan for shareholders?

It enables the acquisition of shares at a reduced average cost. Signup and view all the answers

How are stock dividends typically treated for tax purposes?

They are treated the same as cash dividends. Signup and view all the answers

What distinguishes common shares in terms of voting privileges?

Some common shares may lack voting rights entirely. Signup and view all the answers

What is the concept of dollar cost averaging in the context of dividend reinvestment?

Investing a fixed amount at regular intervals to reduce investment risk. Signup and view all the answers

Why might a company choose to pay stock dividends instead of cash dividends?

To maintain more cash to finance future growth. Signup and view all the answers

What is a common concern for individual shareholders when purchasing odd lots of shares?

Higher commission costs associated with small purchases. Signup and view all the answers

Which of the following is a characteristic feature of preferred shares compared to common shares?

Preferred shares typically have a fixed dividend amount. Signup and view all the answers

During which meetings do common shareholders typically exercise their voting rights?

At annual meetings and special or general meetings. Signup and view all the answers

In what way do stock dividends affect a company's retained earnings?

They are recorded similarly to cash dividends. Signup and view all the answers

Which type of shareholder is most likely to opt for cash dividends when given a choice?

Shareholders with an immediate need for cash. Signup and view all the answers

What is the primary purpose of a reverse stock split for a company?

To avoid delisting from a stock exchange Signup and view all the answers

What major disadvantage may investors face when dealing with international stocks?

Exchange rate fees and foreign exchange risk Signup and view all the answers

When Conner sold his U.S. stock for a 12% gain, how much did he actually receive upon converting back to Canadian currency?

$10,666 Signup and view all the answers

How are Canadian Depositary Receipts (CDRs) primarily beneficial to Canadian investors?

They trade in Canadian dollars, mitigating exchange rate fluctuations Signup and view all the answers

What percentage of the world’s capital markets does Canada approximately represent?

3% Signup and view all the answers

What was the trading value of the Canadian dollar when Conner initiated his investment?

$0.80 U.S. per Canadian dollar Signup and view all the answers

What is one of the risks associated with investing in international stocks?

Foreign exchange rate risk Signup and view all the answers

Why might some international company shares be considered inaccessible to investors?

Due to high stock prices Signup and view all the answers

Which of the following best describes the result of Conner's investment after three months?

A return of 6.67% Signup and view all the answers

What action did Conner take when he invested in U.S. stocks?

Converted his Canadian funds into U.S. dollars Signup and view all the answers

What primarily influences how much investors are willing to pay for preferred shares?

The creditworthiness of preferred share issuers Signup and view all the answers

In the event of bankruptcy, which group does not rank above preferred shareholders?

Common shareholders Signup and view all the answers

What is a significant impact of a decrease in perceived creditworthiness of an issuer on preferred shares?

Preferred share prices will likely drop Signup and view all the answers

Why do many issuers obtain a credit rating for their preferred shares?

To help investors determine relative creditworthiness Signup and view all the answers

What is the primary reason that call risk limits the upside price potential of preferred shares?

Issuers can redeem shares at par value if market conditions change Signup and view all the answers

How does extension risk arise for preferred shares?

If the issuer unilaterally decides not to redeem shares Signup and view all the answers

What type of preferred shares are likely to experience the biggest price declines due to creditworthiness concerns?

Fixed-rate perpetual preferred shares Signup and view all the answers

Which rating agencies are known for publishing preferred share credit ratings in Canada?

Standard & Poor’s and DBRS Morningstar Signup and view all the answers

What is typically the consequence for investors if preferred shares are trading at a premium to their par value?

Issuers may opt to call the shares Signup and view all the answers

Study Notes

Stock Transactions and Dividend Timing

Weekends are excluded in calculating the settlement date for stock transactions, which affects when dividends are classified as cum or ex-dividend.
Cum dividend indicates entitlement to the dividend, while ex-dividend denotes that the stock purchased will not pay the upcoming dividend.

Dividend Reinvestment Plans (DRIPs)

Shareholders can opt into automatic plans where dividends are reinvested to purchase additional shares.
Reinvested dividends are taxable as ordinary cash dividends despite not being received as cash.
Plans facilitate fractional share purchases, which are typically not available on the market for individual investors.
DRIPs are considered an automatic savings method, allowing gradual accumulation of shares at a reduced average cost (dollar cost averaging).

Stock Dividends

Some companies issue stock dividends during rapid growth instead of cash dividends to retain earnings.
Shareholders have the option to sell stock dividends for cash, and these dividends are recorded similarly to cash dividends for accounting purposes.

Voting Privileges of Common Shares

Common shareholders generally have one vote per share, allowing them to influence company decisions at meetings.
Companies may issue different classes of shares (e.g., Class A, B, C) with varying voting rights and dividend entitlements.

Canadian Depositary Receipts (CDRs)

CDRs enable Canadian investors to access U.S. and global companies listed on major exchanges such as NYSE and NASDAQ, mitigating exchange rate risks.
CDRs are traded in Canadian dollars, simplifying cross-border investment.

Credit Risk in Preferred Shares

Investors evaluate the creditworthiness of preferred share issuers, as preferred shares rank below other creditors in bankruptcy situations.
A decrease in perceived creditworthiness can lead to a decline in the value of preferred shares, particularly for fixed-rate, perpetual preferred shares.

Call Risk

Most preferred shares are callable, meaning issuers can redeem them, which limits potential price gains for investors.
Investors might avoid pushing prices high due to the potential for early redemption at a premium.

Extension Risk

A lack of a retraction feature on preferred shares results in extension risk, leaving the issuer solely responsible for deciding when to return par value to investors.

Key Stock Market Indices

The CAC 40 Index consists of the 40 largest companies on the Paris Stock Exchange, calculated based on market capitalization.
The Swiss Market Index includes 20 of Switzerland's largest and most liquid stocks, serving as a benchmark for blue-chip stocks.

ESG indexes comprise companies with strong ESG performance, evaluated by third-party firms.
The MSCI Canada ESG Leaders Index has outperformed broader market indexes since its inception in 2007, showing resilience during market downturns.
The MSCI World ESG Leaders Index provides exposure to companies with strong ESG ratings while excluding those with harmful environmental or social impacts.

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Description

This quiz focuses on understanding the settlement dates of stock transactions, highlighting the role of weekends and the distinction between cum dividend and ex-dividend trading. Test your knowledge on how these factors influence trading dates and settlement processes.