1. Equity Securities

Question 0

Reasons a company would repurchase its own stock

Answer 0

1. to increase Earnings Per Share
2. to finance future acquisitions (i.e., a stock for stock acquisition)
3. to provide stock for employee stock option plans
4. to fight a takeover attempt

Question 1

Order of Asset Distribution upon Liquidation

of a publicly owned company

Answer 1

1. Taxes
2. Secured debt (generally bonds backed by assets)
3. Unsecured debt (debentures, general creditors)
4. Preferred stockholders
5. Common stockholders

Question 2

Outstanding shares

Answer 2

Issued Stocks - Treasury Stocks = Outstanding Stock

Outstanding Shares are the shares of a corporation’s stock that are issued and held by stockholders.

Question 3

Treasury stocks

Answer 3

(or Repurchased stock)

stocks a company repurchases

Question 4

Calculating number of Outstanding Shares

Answer 4

Issued Stock - (minus) Treasury Stock = Outstanding Stock

Question 5

Current Yield on Common Stock formula

Answer 5

Annual Dividend
_______________ = Current Yield (%)
Market Price

An investor previously purchased 100 shares of ABC common stock for $9 per share. ABC currently has a market value of $10. The stock pays a quarterly dividend of $.50 per share. What is the current dividend yield?
(.50 x 4) quarterly yield
$10 divided by $10 = .20 = 20% Current Yield

Question 6

DPS - Dividends Per Share

Answer 6

Dividends Per Share - the amount of dividends that have been declared by the corporation that will be allotted to each share of common stock.

DPS = Dividends Paid to Common Shareholders
——————————————————– = DPS $
Outstanding Common Shares

Question 7

Dividend Payout Ratio formula

Answer 7

DPS
____ = Dividend Payout Ratio (%)
EPS = Earnings per share

What % of their earnings is the company paying out to stockholders

Question 8

Subscription Rights

The number of rights required to buy one new share of stock

Answer 8

Outstanding Shares # of rights needed to purchase
/ = each new share
New Shares

1,000,000 (OS)
/ = 4 rights needed to purchase each
250,000 (NS) new share

If someone holds 1,000 rights, they would have 250 new shares they could purchase (1,000 / 4 = 250)

Question 9

Par Value (default)

Answer 9

$100

Question 10

Formula for Stock Split

Answer 10

An investor owns 200 shares of ABC Common Stock trading at $20 per share. ABC announces a 2:1 Stock split.
Number of shares after the split -
Split 2 x Stocks 200 = 400 = 400 new shares
1 owned 1 1

New Market Price
Stocks 200 x Current $20 = 4000 = $10 per share
owned Mkt $ 400 (new # stocks owned)