Series 6: Chapter 1 - Investment Securities

Front 1

Money Market

Back 1

Refers to transactions in short-term debt instruments

Front 2

Capital Market

Back 2

Refers to the market for long-term debt and equity securities.

Front 3

Prime Rate

Back 3

The interest rate charged on loans made by commercial banks to their best customers.

Front 4

What are the most widely held short-term debt instruments?

Back 4

U.S. Treasury Bills

Front 5

Limited Liability

Back 5

The stockholder is not liable for the losses and liabilities of a corporation and connot lose more than what was paid for the stock.

Front 6

Proportionate Ownership

Back 6

A stockholder's ownership is in proportion to all the common stock outstanding.

Front 7

Transfer Rights

Back 7

The shareholder has the right to transfer their ownership to another party (sell their stock) or could give it away.

Front 8

Dividends

Back 8

Stockholders may share in the profits of the corporation.

Front 9

Preemptive Rights

Back 9

Existing shareholders have the right to purchase new shares allowing them to maintain their proportionate ownership when more shares are issued to the public.

Front 10

Voting

Back 10

Shareholders vote in proportion to their holdings, either at the meeting or by proxy (absentee vote).

Front 11

Protection

Back 11

The shareholder has the right to take actions to protect the corp. against the wrongful acts of management.

Front 12

What does it mean if a stock certificate is held in street name?

Back 12

Securites are held in the name of the broker, but owned by the customer. All securities held in margin account are in street name.

Front 13

Authorized Stock

Back 13

The amount the corporation has the power to issue.

Front 14

Outstanding Stock

Back 14

Stock that has been issued and is in the hands of stockholders.

Front 15

Treasury Stock

Back 15

Issued stock that is repurchased in the market by the issuing corporation. It is authorized and issued but not outstanding. It appears on the balance sheet as a deduction from issued stock.

Front 16

Name the 2 methods of voting for positions on the Board of Directors.

Back 16

1. Regular (Statutory)
2. Cumulative (Block)

Front 17

If a stockholder owns 100 shares of stock and six persons are to be elected to the Board. Under Regular (statutory) voting, how would the votes be cast?

Back 17

The stockholder would cast 100 votes each for 6 people.

Front 18

If a stockholder owns 100 shares of stock and six persons are to be elected to the Board. Under Cumulative(block) voting, how would the votes be cast?

Back 18

The stockholder can cast these votes in any way desired.

Front 19

What are the 3 terms commonly used in referring to the value of stock?

Back 19

1. Par Value
2. Book Value
3. Market Value

Front 20

Par Value

Back 20

The value imprinted on a security, such as a stock certificate or bond, used to calculate a payment, such as a dividend or interest; face value

Front 21

Book Value

Back 21

Tangible net asset value; Equal to tangible net asset value per share.

Front 22

Market Value

Back 22

the current price at which the shares could be bought or sold in the marketplace.

Front 23

Preferred Stock

Back 23

An equity security that is entitled to receive dividends before the common stockholders.

Front 24

Cumulative Preferred Stock

Back 24

Stockholders are entitled to the current year's dividend and those dividends accumulated from prior years.

Front 25

Participating Preferred Stock

Back 25

Entitled to a specific dividend, but also participate with the common stockholders dividends. Fixed to a minimum, but not a maximum.

Front 26

Convertible Preferred Stock

Back 26

Can be converted into common stock.

Front 27

Normally what is the par value of corporate bonds?

Back 27

$1,000

Front 28

When do corporate bonds pay interest?

Back 28

Semi-annually

Front 29

Corporate Bonds

Back 29

A form of debt and a promise by the corp. to pay a sum of money at a specified future date along with interest payments.

Front 30

Bonds selling for a price greater than par are said to be selling at a ________?

Back 30

Premium

Front 31

Bonds selling for a price less than par are said to be selling at a ________?

Back 31

Discount

Front 32

How much would a bond sell for if the quoted price was 103 3/4

Back 32

103 full points x $10 = 1030
3/4 point x $10 = 7.50

Total Price = 1037.50

Front 33

Mortgage Bonds

Back 33

Secured by mortgages on real estate.

Front 34

Equipment Trust Certificates

Back 34

Issued by transportation companies and are secured by liens on equipment.

Front 35

Debenture Bonds

Back 35

Unsecured bonds

Front 36

Subordinated Debentures

Back 36

Subordinated in their claim on the assets of the corporation. The last type of debt to be paid off in a corp. liquidation.

Front 37

Guarenteed Bonds

Back 37

Bonds in which the payment of principal and interest is guarenteed by another corporation.

Front 38

Income Bonds

Back 38

Bonds where interest payments are only made if the corporation's earnings are sufficient.

Front 39

Parity Price

Back 39

The price the stock must sell at to be equal in value to the bond.

Front 40

What is the order of payments in corporate liquidation

Back 40

1. Taxes
2. Senior Lien Bonds(1st Mortgages)
3. Bank loans, accts payable, debentures, and other unsecured debt
4. Subordinate Debentures
5. Preferred Stock
6. Common Stock

Front 41

Zero Coupon Bond

Back 41

A bond that is purchased by an investor at a deep discounted price and the bond pays all of its interest at maturity.

Front 42

Nominal Yield

Back 42

The fixed interest rate printed on the bond or the face rate.

Front 43

Current Yield

Back 43

Annual interest rate on a bond divided by the current market price of the bond.

Front 44

Yield to Maturity

Back 44

Determines the rate of return a bondholder would receive, if the bond is held to the maturity date.

Front 45

Rights

Back 45

They allow a common stockholder to subscribe to a new issue of common stock before it is offered to the public.

Front 46

Warrants

Back 46

A marketable option which gives the holder the long-term right to buy a certain number of common shares, at a specified price during a specific time period.

Front 47

American Depositary Receipts (ADRs)

Back 47

Receipts traded in the US that represent shares of a foreign company.

Front 48

What is the purpose of Real Estate Investment Trusts?

Back 48

To enable the smaller investor to invest in real estate.

Front 49

Collateralized Mortgage Obligations (CMOs)

Back 49

Bonds that represent a pool of mortgages. Normally $1000 and pay interest semi-annually.