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119 Cards in this Set
- Front
- Back
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Common stock is what kind of security?
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Equity |
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Authorized stock=
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total amount permitted |
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Issued stock= |
total amount given out |
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Treasury stock= |
issued and repurchased |
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Outstanding stock=
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Issued-treasury |
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Do common stockholders have rights to dividends?
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YES! |
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Stock dividend= |
more stock % |
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Stock split= |
Cheaper price |
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Reverse stock split
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share price increases |
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What is preemptive rights?
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buy new shares first |
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Do common stockholders have voting rights? |
YES (board of directors, mergers, stock splits, etc) |
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Statutory voting= |
1 share=1 vote per each seat of board of directors (minority can't elect) |
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Cumulative voting= |
1 vote for 1 share times # of Board of Directors (minority CAN elect) |
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4 rights of common stockholders (besides voting and dividends) |
2. transferability 3. limited liability 4. continuity |
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Define transferability |
can give to anyone |
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Define limited liability
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protected for corporations debts (can only loose price paid for stock) |
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Define continuity |
keeps going for life of company |
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What type of security is a preferred stock? |
equity!
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Dividend preference of preferred stock |
has to be paid first! |
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does preferred stock have a fixed dividend? |
yes! (always going to be the same no matter the market) |
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Straight preferred stock |
receive dividends before common stock |
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Cumulative preferred stock |
dividends paid that were not previously paid |
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participating preferred |
after preferred get dividends, can share with common stock in extra dividends |
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what is the liquidation preference of preferred stock? |
all investments and dividends before common stock can be paid |
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does preferred stock have voting rights? |
no |
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tax advantages of preferred stock |
if owns more than 20% of other corporation, not taxed on 80% |
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convertible preferred stock |
price increases market price |
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Conversion price of preferred stock
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based on PAR |
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Parity price |
common stock=preferred stock |
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callable preferred stock |
corporations can repurchase stock |
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As interest rates increase |
prices decrease |
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what type of security is a bond |
debt |
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is interest a legal obligation for a bond? |
YES |
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Coupon rate is equal to the |
interest rate |
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for a bond, 1 year is what duration? |
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for a bond, 1-5 years is what duration? |
intermediate |
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for a bond, 5 years or more is what duration?
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long |
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What is a callable bond? |
corporation can repurchase |
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a secured bond has what |
specific collateral |
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mortgage bonds= |
collateral of real estate |
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equipment trust bonds |
equipment as collateral |
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Collateral trust bond |
a portfolio of collateral |
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Another name for a unsecured bond |
no collateral |
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why do debentures have higher interest rates? |
higher risk |
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income bonds |
only pays if corporation has enough income |
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convertible bonds |
bonds to common stock |
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why do convertible bonds have duel personalities? |
can act like stocks or bonds |
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when is interest paid on a zero-coupon bond? |
at maturity |
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how are zero-coupon bonds bought? |
at discount |
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when must taxes be paid on a zero coupon bond? |
each year |
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when a bond sells at discount what happens PAR? |
decreased PAR |
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when a bond sells at premium what happens to PAR? |
increased PAR |
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if interest rates increase, bond prices |
decrease |
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if interest rate decease, bond prices |
increase |
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what is the formula for nominal yield
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NY= annual interest/par value |
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what is the formula for current yield |
CY= annual interest/current price |
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if the interest rates are increased, the bonds will sell at a______ |
discount |
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if the interest rates are decreased, the bonds will sell at a |
premium |
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what is the 3 words to remember with most volatility/duration? |
low (price) deep (discount) |
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In a corporation liquidation, what is the order for payouts?
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2. wages and taxes 3. unsecured bonds 4. preferred stock 5. common stock |
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capitalization= |
total amount of money in a business |
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US Government securities are considered the |
safest |
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Series EE and HH bonds are______ |
non marketable |
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on a Series EE bond, interest is |
deferred |
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How do you buy the Series EE? |
at half of face value |
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how is the interest paid on a Series HH |
semiannually |
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How are Series HH purchased? |
bought at face value with fixed interest |
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T-Bills sell at a |
discount |
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T-Bills are the most |
liquid and lowest risk |
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T Bills maturities |
4, 13, 26, 52 weeks |
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T Notes maturity |
10 years or less (sold at face value) |
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T Bonds maturity |
30 years (sold at face value) |
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Zero coupon bonds maturity
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Do zero coupon bonds have a guaranteed rate of return?
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YES!!! |
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When does a shareholder get interest on a zero coupon bond? |
at maturity |
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When is a zero coupon bond taxed? |
annually |
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Mortgage backed securities are called |
pass-through |
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3 examples of Mortgage backed securities |
2. FNMA (Fannie Mae) 3. FHLMC (Freddie Mac) |
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Do mortgage back securities pay with principle and interest payments |
yes |
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prepayment risk |
paying off mortgage too fast |
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CMOs (Collateralized Mortgage Obligations) |
decreased prepayment risk extended maturity risk more cash flow predictable maturities decreased yield |
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reinvestment risk |
when dividends are reinvested wont get the same price |
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Mortgage backed= _______ yield and ______ of principle |
high yield and safety of principle |
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Mortgage backed are taxed at what? |
Federal level ONLY |
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State and muni bonds are taxed on what? |
Local and state taxes only!! (except if live in state where it was issued) |
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GO bonds have a ______ risk and ______ voter approval
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lower risk and need voter approval |
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Revenue bonds |
don't need voter approval |
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industrial revenue bonds |
taxable only by FED |
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Zero-coupon municipal bonds are good for what type of earners? |
high income because interest is tax free |
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Money market is less than |
1 year |
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Capital market is more than |
1 year |
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4 benefits of a money market |
2. 1 year or less 3. low risk 4. debt instruments (T-bills, CDs, commercial paper) |
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Government money market instruments (3 things) |
2. long term T note/bond 3. Repos |
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What is a Repo (repurchase agreement) |
short term loan that has collateral |
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Fed Fund Rate=
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overnight loan (think FedEx overnight) |
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prime rate |
loan rate large US banks charge top corp accounts |
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Commercial paper |
Large amounts ($100,000 |
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Stock rights |
can sell to other s/h buy BELOW current market price (short, common, discount) |
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Warrants
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mature in 5 years more marketable buy ABOVE current market price (Long, preferred/bonds, premium) |
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Seller is the
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writer |
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Buyer has the |
right |
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Seller has the |
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Bulls buy _______ and write______ |
(Bulls buy a call and sell put) |
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Bears buy _______ and write _____
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(bears buy puts and sell calls) |
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ADRs are |
must register with SEC |
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With ADRs, describe dividends and rights
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no voting or preemptive rights |
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what type of risks do ADRs have? |
business and currency exchange risks |
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Accredited investors= |
1. individual=$1 million net worth ($200,000-$300,000 income) |
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Number of purchasers for accredited |
unlimited accredited |
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Hedge funds=
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high risk low liquidity |
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P/E ratio
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price/earnings |
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earnings formula
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market price/P/E |
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Corporate bonds are quoted in |
1/8th point |
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Government bonds are quoted in |
1/32nd a point (via decimal) |
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Basis points= |
1%=100 |
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Common stock yield formula |
annual dividend/current price |
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current yield formula= |
annual interest/current price |
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tax yield formula |
current muni price/(100%-tax bracket%) |
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