Series 7: Equity Securities

Front 1

Security

Back 1

investment that represents either an ownership stake or a debt stake in a company

Front 2

Debt security

Back 2

acquired by buying a company's bonds

Front 3

Debt investment

Back 3

loan to a company in exchange for interest income and the promise to repay the loan at a future maturity date

Front 4

OTC Over the Counter Market

Back 4

where stocks and bonds are normally purchased and sold, no physical location ie. not face to face

Front 5

NYSE New York Stock Exchange

Back 5

auction market where buyers and sellers are matched by a specialist who maintains a fair and orderly market for a particular set of stocks

Front 6

FINRA Financial INdustry Regulatory Authority

Back 6

What the OTC market is linked by computer terminals to. Member firms across the country

Front 7

Stock

Back 7

represents equity or ownership in a company

Front 8

Bonds

Back 8

loan to a company (a debt)

Front 9

Balance Sheet

Back 9

Summarizes the company's assets, liabilities, and equity

Front 10

Assets

Back 10

What the company owns: cash in the bank, accounts receivabe (money owed), investments, propety, inventory, etc

Front 11

liabilities

Back 11

what the company owes: accounts payable (current bills), short and long term debt, other obligations

Front 12

equity

Back 12

The excess of the value of assets over the value of liabilties (the companies net worth)

Front 13

Net worth

Back 13

subtracting all liabiliteis from the value of total assets:

Assets = liabilities + net worth
Assets - liabilities = net worth

Front 14

BOD board of directors

Back 14

what stockowners vote and elect to have some say in company management

Front 15

Preferred Stock

Back 15

equity ownsership in a corporation but does not have the same voting rights or appreciation potetntial as common stock. normally pays a fixed, semiannual dividend, is paid first if company declares bankruptcy

Front 16

comman stock

Back 16

classified as authorized, issued, outstanding, and treasury

Front 17

authorized stocks

Back 17

specific number of shares the company has authorization to issue or sell

Front 18

Issued Stock

Back 18

has been authorized and distributed to investors.

Front 19

Outstanding Stock

Back 19

includes any shares that a company has issued but has not repurchased, or stock that is investor owned

Front 20

How to calculate Outstanding stock

Back 20

Issued stock - treasury stock = outstanding stock

also

treasury stock = issued stock - outstanding stock

Front 21

Tresury stock

Back 21

stock a corporation has issued and subsequently repurchased from the public. Does not carry the rights of outstanding comman shares such as voting rights and right to receive dividends

Front 22

Par value

Back 22

arbitrary value the company gives the stock in company's articles of incorpartion and has no effect on stock's market price

Front 23

Capital in excess of par/ Paid in Surplus/Capital Surplus, or Paid in Capital

Back 23

When the corporation sells stock, the money received exceeding par value value is recorded on the corporate balance sheet

Front 24

Book value

Back 24

measure of how much a common stockholder could expect to receive for each share if the corporation were liquidated

ex difference between the value of a corpoarations tangible assets and its liabilities divided by the number of shares outstanding

Front 25

Market Price

Back 25

price investors must pay to buy the stock, influenced by company's business prospects and supply and demand

Front 26

supply

Back 26

the number of shares available to investors

Front 27

demand

Back 27

the number of shares investors want to buy

Front 28

Voting Rights

Back 28

what common stockholders use to ercise control of a corporation by electing a board of directors and by voting on important corporate policy matters at annual meetings

Front 29

Statutory Voting

Back 29

allows a stockholder to cast one vote per share owned for each item on a ballot

Front 30

cumulative voting

Back 30

allows stockholders to allocate their total votes in any manner they choose

Front 31

Proxy

Back 31

a form of absentee ballot, voting without attending the meeting

Front 32

Proxy solicitation

Back 32

when a company sends proxies to shareholders usually for a specific meeting

Front 33

SEC Securites and Exchange Commisision

Back 33

Before making proxy solicitation companies must submit the information to...

Front 34

Proxy contest

Back 34

If a proxy vote could change control of a company

Front 35

voting and nonvoting

Back 35

types of common stock companies may issue normally differentiating the issues as class a and class b

Front 36

antidilution provision

Back 36

when a corporation raises capital through sale of additional common stock, may be required by law or its corporate charter to offer securities to its common stockholders

Front 37

Preemptive right

Back 37

what stockhnolders have to purchase enough newly issued shares to maintain proportionate ownership in the corporation

allows investors right to maintain a proportioinate interest in company's stock

Front 38

Limited liability

Back 38

protects stockholders from having to pay a corporation's debts in bankruptcy

Front 39

Junior Security

Back 39

Common stock referred to this because it is last in line in a corporate liquidation

Front 40

Stock split

Back 40

when market prices rise too high, is done to make stock price attractive to wider base of investors

Front 41

Forward stock split

Back 41

increases the number of shares and reduces the price without affecting the total market value of shares outstanding;

investor will receive more shares but the value of each share is reduced

Front 42

How to calculate 2:1 split?

Back 42

Multiply the original number of shares by 2 and divide by 1 then calculate the per share value by knowing the total value

Front 43

Forward st ock split regarding quantity as opposed to value

Back 43

the price will always be less than the percentage increase in shares:

2:1, number of shares doubles and price of stock is halved

Front 44

Reverse split

Back 44

has opposite effect on the number and price; investors own fewer shares worht more per share

Ex. 1:2 reverse split owned 100 shares worth $5 will own shares worth $10 per share

Front 45

Long the stock

Back 45

an investor who buys shares is considered this

Front 46

Short Sale

Back 46

When investor sells shares before he owns them with the intent of buying them back at a lower price in the future - sell high, buy low later. Borrowing shares to sell that investor must eventually replace

Front 47

Short the stock

Back 47

An investor who sells borrowed shares is considered this until he buys and returns the shares to the lender

Front 48

Capital appreciation

Back 48

an increase in the market price of shares

Front 49

Cash dividends

Back 49

Corporations pay these quarterly, may increase over time as profitability increases

Front 50

Stock dividends

Back 50

Additional shares in the issuing company

Front 51

Property dividends

Back 51

Shares in a subsidiary company or a product sample

Front 52

Common dividends to be issued?

Back 52

Stock dividends, rather than cash dividends are more likely by companies who want to reinvest earnings for research and development. Property dividends are least common stock

Front 53

Capital gains

Back 53

when investor buys low and sells high

Front 54

Realized gain

Back 54

if investor sells the stock at the higher price, will be responsible for taxes on the gain

Front 55

Unrealized gain

Back 55

If investor does not sell the stock and is not taxed

Front 56

Senior securities

Back 56

a company's debt and preferred shares are considered this after bankruptcy

Front 57

1.3

Back 57

1.3

Front 58

Preferred stock

Back 58

has features of both equity and debt securities, however does not offer appreciateion potential associated with common stock

prices change with interest rates and is usually nonvoting

Front 59

Equity security

Back 59

represents ownership in the corporation

Front 60

Fixed - income security

Back 60

like a bond with fixed dividend

Front 61

When the BOD declares dividens, owners of preferred stock receive before common stockholders

if a corp goes bankrupt, preferred stockholders have a priority claim over common stockholders on the assets remaining after creditors have been paid

Back 61

Advantages of preferred stock over common stock

Front 62

Fixed dividend

Back 62

key attraction for income oriented investors, normally identified by its annual dividend payment stated as a percentage of its par value, usually $100

Front 63

Know as 6% preferred

Back 63

a preferred stock with a par value of $100 that pays $6 in annual dividends

Front 64

Adjustable or variable dividend rates

Back 64

Dividends tied to the rates of other interest rate benchmarks, treasury bill and money market rates eg

Front 65

Reset date

Back 65

Date of dividend adjustment

Front 66

No

Back 66

does preferred stock normally have voting or preemptive rights?

Front 67

No

Back 67

Does prefferred stock have a preset date at which it matures or redemption date

Front 68

Inverse relationship

Back 68

When interest rates rise, preferred stock price falls and when interest rates fall preferred stock price raises

Front 69

Straight Preferred (noncumulative)

Back 69

no special features beyond the stated dividend payment

Missed dividends are not paid

Front 70

Cumulative preferred

Back 70

all dividends due accumulate on the company's books until the corporation can pay them. Receive their current dividends plus the total accumulated dividends - dividends in arrears - before any dividends may be distributed to common stockholders

Front 71

Convertible

Back 71

if preferred stock owner can exchange each preferred share for shares of common stock

price fluctuates in line with the common stock provided common stock's valule is high to make conversion attractive

Front 72

Convertible preferred

Back 72

often issued with a lower stated dividend rate than nonconvertible preferred because the investor may have the opportunity to convert to common shares and enjoy capital gains

Front 73

increases the total number of common shares outstanding and decreases earnings per common share and may decrease the common stock's market value

Back 73

What are the consequences of converting preferred to common stock

Front 74

Participating preferred stock

Back 74

offers its owners a share of corporate profits that remain after all dividends and intereset due other securities are paid

Front 75

Callable or redeemable preferred

Back 75

company can bay stock back from investors at a stated price after a specified date. allows company to replace a relatively high fixed dividend obligation with a lower one

Front 76

Callable preferred

Back 76

Which type of preferred stock typically has the highest stated rate of dividen all other factors being equal

Front 77

Straight preferred

Back 77

Of straight and cumulative preferred which would you expect to have the higher stated rate

Front 78

1.4

Back 78

1.4

Front 79

Dividends

Back 79

distributions of a company's profits to its stockholders,rd of directors votes to make such distributions

Front 80

Cash dividends

Back 80

normally distributed by check if an investor holds the stock certificate or are automatically deposited to a brokerage account

Front 81

stock dividend

Back 81

company issues shares of its common stock as a dividend

Front 82

current yield or dividend yield

Back 82

annual dividend (normally four times the quarterly dividend) divided by the current market value of the stock

Front 83

Dividend yield = Annual dividend / current market value of the stock`

Back 83

How to calculate dividend yield

Front 84

Stock certificate

Back 84

indicates the shares of a corporation a person owns

Front 85

CUSIP Committee on Uniform Securities Identification Procedures

Back 85

universal security number helps identify and track security

Front 86

stock power

Back 86

form that duplicates the back of a stock certificate for transfer purposes

Front 87

transfer and registration

Back 87

2 distinct functions that cannot be performed by a single person or department operating within the same institution

Front 88

transfer angents

Back 88

responsible for ensuring that its securities are issued in correct owner's name

cancelling old and issuing new certificates

maintaining records of ownership

handling problesm relating to lost, stolen, or destroyed certificates

Front 89

Registrar

Back 89

ensures that a corporation does not have more shares outstanding than have been authorized

Front 90

1.6

Back 90

1.6

Front 91

Points

Back 91

what the stock's market price is quoted in whole dollars

Front 92

Price to earnings ratio

Back 92

gives the ratio of the stock's current price to its most recent 12 months earnings per share

Front 93

Ex dividend or ex rights

Back 93

a buyer will not receive the next dividend check

Front 94

Net change in price

Back 94

difference between the closing price on the trading day reported and the previous day's closing price

Front 95

Nasdaq National Association of Securities Dealers Automated Quotation system

Back 95

OTC stocks that have both national and global interest

Front 96

Nasdaq Global Select Market

Back 96

has initial listing standards both financial and with regard to liquidity that are among the highest of any other market

Front 97

Nasdaq Global Market

Back 97

OTC stocks that have high interest and appeal.

Front 98

Nasdaq Capital Market

Back 98

Reflects the capitalization of the issuers included in this market tier

Front 99

Dividend department

Back 99

collects and distributes cash dividends for stocks held in street name

Front 100

Dividend Disbursing agent

Back 100

makes the appropriate distributions or transfers directly to broker/dealer if broker/dealer holds securities in street name

Front 101

Ex-date

Back 101

2 business dats beofer the record date, must purchase 3 bus days berfore the record date to qualify for dividend

Front 102

Dividend record day

Back 102

The stockholders of record receive the dividend distribution

Front 103

Payable date

Back 103

3 or 4 weeks after record date, dividend disbursing agent sends dividend checks to all stockholders whose naes appear on the books as of the record date

Front 104

Cash trades

Back 104

Settle the same day, go ex dividend on th4e day after the record date becuase no lag occurs

Front 105

DERP (-_-) Decleration Ex Record Payable

Back 105

order in which the dates involving dividend distributions occur

Front 106

Decleration record and payment are determined by board of directors

FINRA determine ex date

Back 106

who determines the decleration, record, payment and ex dates?

Front 107

Speical Handling

Back 107

a stock distribution of 25% or more of the shares outstanding is subject to this

Front 108

first business day following the payable date

Back 108

What is the ex date on stock dividend of 25% or more and stock splits of 5 for 4 or better

Front 109

Due bill

Back 109

printed statement showing a buyer's right to a dividend

Front 110

Rights offering

Back 110

allows stockholders to purchase common stock below the current market price

Front 111

Exercise the rights to buy stock by sending the rights certificates and a check for the required amount to the rights agent

sell the rights and profit from their market value

let the rights expire and lose value

Back 111

What can a stockholder who receives rights do

Front 112

Subscription Right

Back 112

certificate representing a short term privilege to buy additional shares of a corporation. One right is issued for each common stock share outstanding

Front 113

Terms

Back 113

Of a rights offering whic his stipulated on the subscription right certificates mailed to stockholders

Front 114

cum rights

Back 114

An investor who buys stock and receives the right

Front 115

Ex rights

Back 115

An investor who buys stock and does not receive rights

Front 116

(Market Price - Subscription Price) / (Number of rights to purchase 1 share + 1)

Back 116

Formula for value of one right

Front 117

(Market Price - suibscription price) / (Number of rights to purchase 1 share)

Back 117

Formula to determine value of a right after the ex date

Front 118

Warrant

Back 118

certificate granting its owner the right to purchase securities from the issuer at a specified price (normally higher than the current market price) at a specified date

Front 119

sweetners

Back 119

what warrents are offered as with other securities such as bonds or preferred stock

Front 120

Units

Back 120

bundled offerings which include bonds preferred stock and warrents etc

Front 121

Rights are short term, on issuance, exercise price below market price, may trade with or seperate from common stock, offered to existing shareholders with preemptive rights

Warrants are long term, on issuance, exercise price higher than market price, may trade with or separate from the units, offered as a sweetner for another security

Back 121

What are rights vs warrants

Front 122

ADRs American depositary receipts

Back 122

facilitate the trading of foreign stocks in US markets

Front 123

Currency risk

Back 123

possibility that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the US dollar

Front 124

REIT

Back 124

company that manages a portfolio of real estate investments in order to earn profits for shareholders

Front 125

`Equity REITs

Back 125

When the trusts own property

Front 126

Mortgage REITs

Back 126

trusts that own mortgages on property

Front 127

hybrid REITs

Back 127

Trusts that own both mortgage and property

Front 128

ADRS:

no preemptive rights
dividends in dollars
currency risk

REITS

not a limited partnership
not an investment company
pass through income, not losses
75% of total investment assets in real estate
75% of gross income from rents or mortgage interest
Must distribute 90% or more of income to shareholders to avoid taxation as a corporation
Trade on exchanges or OTC
Dividends received from REITS are taxed as ordinary income

Back 128

ADRS vs REITs