Series 7 Unit 1

Front 1

Net Worth

Back 1

Net worth is computed by subtracting all liabilities from the value of total assets.

Front 2

3 methods of common stock valuation

Back 2

Par - arbitrary value 2) Book Value - current liquidation value of share 3) Market Value - supply and demand value

Front 3

Common stock types

Back 3

1) Outstanding Stock - shares issued but not repurchased 2) Authorized Stock - specific number of shareds the company has authorization to issue or sell 3) Issued Stock - authorized and distributed to investors 4) Treasurery stock - shared issued and subsequently repurchased.

Front 4

Balance Sheet shows you?

Back 4

1) Assets 2) Liabilities 3) Equity

Front 5

Net worth =

Back 5

assets - liabilities

Front 6

Voting: 2 types of voting

Back 6

1) Statutory - one vote, per share for each item on the ballot 2) Cumulative - allows allocation of total number of votes in any manner the shareholder chooses.

Front 7

Why issue "nonvoting" stock?

Back 7

Allows company to raise additional capital while maintaining management control and continuity without diluting voting power.

Front 8

What is "preemptive rights"?

Back 8

Gives investors the rith to maintain a proportionate interest in a company's stock.

Front 9

Two types of stock splits and what they do?

Back 9

1) Forward split - increases the number of shared and reduces the price withouth affecting the total market value of shares outstanding. "More shares, less value = same total ownership interest before and after" 2) Reverse split - reduces the number of shares and increases the price. "Fewer shareds, more value = shame total interest before and after"

Front 10

What is the "long" and "short" of common stock?

Back 10

The "long" positon is limited to lose only the value of what was purchased in the stock. The "short" position is unlimited in the potential loss.

Front 11

What are the key features of Preferred Stock?

Back 11

1) When a BOD declares a dividnece, they receive their dividends before common stockholders. 2) If the corporation goes bankrupt, they have a priority claim to the remaining assets over common stock holders. 3) Offers a dividend which can be "fixed" or "adjustable". 4)Are NOT guaranteed and often pain semiannually as declared by the BOD.

Front 12

Types of preferred stock?

Back 12

1) Cumulative - fixed semiannual divident payments, if a payment is missed, it will be caught up at the next declared dividend. 2) Convertible - each share can be converted to common stock at a preset price noted on the certificate. Often a lower price since it can recognize the capital gains of the stock. 3) Participating - receives a share of the corporate profits and remain after all dividends and interest due other securities are paid. 4) Callable/redeemable - company can buy back after a specified date at a stated price. Often the highest stated rate since it can be called back.

Front 13

Calculate Divident yield

Back 13

annual dividend / current market value of stock

Front 14

Key roles in transferrability of a stock?

Back 14

1) Transfer agent - responsible for a) ensuring securities are issues in the correct owner's name b) cnaceling old and issue new certificates c) maintaining records of ownership d) handling problems relating to lost, stolen or destroyed certificates. 2) Registrar - ensures a corporation does not have more shares outstanding than it has been authorized to issue.

Front 15

Dividend Department - Dividend Disbursing Process

Back 15

Declaration Date: when a company's board of directors approves a dividend payment, it also designates the payment date and the dividend record date. SEC requires to be notified FINRA or the appropriate exchange at least 10 business days before the record date.

Ex-Dividend Date: on the basis of the dividend record date, FINRA or the exchange posts an ex-date, which is two days before the record date. Because most trades settle three days before the record date to qualify for the dividend.

Declaration, record, and payment are determined by the board of directors, and FINRA, or the exchange, determines ex-date.

Note: for dividends only, the buyer is considered the owner as of the settlement date, not the trade date.

Front 16

Dividend Department - Dividend Disbursing Process

Back 16

"Dividend Record Date: the stockholders of record on the record date receive the dividend distribution.

Payable Date: three or four weeks after the record date, the dividend disbursing agent sends dividend checks to all stockholders whose names appear on the books as the record date.

Cash Trades: cash trades settle the same day, so they go ex-dividend on the day after the record date because no lag occurs between the trade date and the transaction settlement.

NOTE:
The order of dates is Declaration, Ex, Record, Payable.
DERP will help you remember the order in which the dates involving dividend distribution occur."

Front 17

Rights

Back 17

"Rights have a theoretical value based on the savings to investors, who then purchase stock below the market price. In dealing with any question on the value of a right, you will not have to adjust market price. The questions deal only with value, so your only decision is whether to divide MP-SP by N or N+1. the easy way to remember is this: If you are asked the value of a right on or after the ex-date, don't use the 1. Cum means ""with"" whereas ex means 'without.""

Before the ex-date
Market price -subscription price
Number of rights to purchase 1 share+1

On the morning of the ex-date
Market price -subscription price
Number of rights to purchase 1 share"

Front 18

Rights and Warrants

Back 18

"Rights Warrants
> Short term (30-45 days) > Long term
> On issuance, exercise > On issuance, exercise
price below market price higher market price
> May trade with or > May trade with or
separate from the separate from
common stock the units
> Offered to existing > Offered as a sweetener
shareholders with for another security
preemptive rights

Note: The long term nature of warranties said to be attractive because of the leverage it offers. Warrants also allow issuers to offer bonds or preferred stock at an interest or dividend rate lower than the market rate because the issuer is offering investors something extra: the long term right to buy stock at a fixed price "

Front 19

ADRs

Back 19

"facilitate the trading of foreign stocks in US markets.

> No preemptive rights
> Dividends in dollars (declared in foreign currency but payable in US dollars)
> Currency risk
> Registered Owner isn't the individual investors
> All exchange-listed ADRs are sponsored"

Front 20

REITs

Back 20

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

> 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"