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Kaplan > Ch. 1 > Flashcards

Ch. 1 Flashcards

1
Q

Define security

A

Any piece of securitized paper that can be traded for value. Does not include insurance policy or fixed annuity.

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2
Q

Define a debt security

A

Security representing investors loan promised to be paid a certain date with interest. AKA debt investment

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3
Q

What is the over the counter market?

A

The security exchange system in which brokers negotiate directly with one another rather than on an auction exchange floor.

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4
Q

What is the stock exchange?

A

An auction market where buyers and sellers are matched by a specialist

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5
Q

Define Stock

A

Equity or ownership in a company

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6
Q

Define Bond

A

A loan to a company

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7
Q

What three things are included on a balance sheet?

A

Assets, Liabilities, Equity

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8
Q

How do you calculate the companies net worth?

A

Asset - Liabilities = net worth

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9
Q

What does the stock entitle its owner?

A

Each stock entitles the owner a portion of the companies profits and dividends and a equal vote

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10
Q

What are the two types of stock?

A

Common and preferred

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11
Q

What are the four classifications of common stock?

A
  1. authorized
  2. Issued
  3. Outstanding
  4. Treasury
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12
Q

Define authorized stock

A

Refers to a specific number of shares that a company has authorization to issue or sell

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13
Q

Define issued stock

A

Stock that has been authorized and distributed to investors

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14
Q

Define outstanding stock

A

Includes any share that a company has issued but has not re-purchased

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15
Q

Define treasury stock

A

Stock that a corporation has issued and subsequently repurchased from the public

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16
Q

What does a treasury stock not include?

A

Voting right and dividends

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17
Q

What are three reasons a corporation would buy back its own stock?

A
  1. Increase earnings per share
  2. Have an inventory of stock available to distribute as stock options, to fund an employee pension plan
  3. Use for future acquisitions
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18
Q

What is the basic formula to find companies outstanding sock?

A

Issued - treasury = outstanding

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19
Q

Define par value

A

An arbitrary value

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20
Q

Define book value

A

The current liquidity value of a share

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21
Q

Define market price

A

The actual price an investor must pay to buy a stock set by supply and demand

22
Q

Which value of a stock is most meaningful

A

Market value or market price

23
Q

What are three things you can vote for when owning common stock?

A
  1. Issuance of any additional stock
  2. Substantial changes to a corporations business
  3. Declaration of stock splits
24
Q

What are the two types of voting?

A

Statutory and cumulative

25
Q

Define statutory

A

Allows one vote per share for each item on a ballet. Equal voting

26
Q

Define cumulative

A

Allows holders to allocate their total votes in any manner chosen.

27
Q

What is a proxy?

A

A form of absentee ballot.

28
Q

Does common stock always allow voting rights?

A

No there are also non-voting and limited voting

29
Q

Define anti-dilution provision

A

Allows holders the preemptive right to purchase new issues before the general public at a discount.

30
Q

What does limited liability mean?

A

Means a stock holder cannot lose more than the amount they paid for a corporations stock and protects the holder from having to pay debts in bankruptcy.

31
Q

Who does cumulative voting benefit?

A

Smaller investors

32
Q

Are shareholders allowed to vote on dividends?

A

No

33
Q

In the event a company is selling more common stock what percentage are you allowed first dips to?

A

The same as you currently own

34
Q

What is the most junior of securities?

A

Common stock

35
Q

How much does ownership change after a split either forward or reverse?

A

Not at all

36
Q

What are the two types of split?

A

Forward and reverse

37
Q

Define forward split

A

Increase in the number of shares and reduces the price

38
Q

Define reverse split

A

Number of shares decreases and the dollar amount per share increses

39
Q

How is income generated from owning stock?

A

From dividends

40
Q

What are the three types of dividends?

A

Cash, Stock, Property

41
Q

Define capital gain

A

When an investor buys a stock at a low price and sells for a profit

42
Q

What is the difference between a realized and unrealized gain?

A

In a realized gain, the investor has sold the stock thereby making a profit. In an unrealized gain, the investor has yet to sell the stock.

43
Q

What is a long position?

A

Buying stock at a low price with the intention of selling at a higher one.

44
Q

What is a short position?

A

Borrowing stock from the company at a high value with the intention of selling at a lower one.

45
Q

Which is more risky and why?

A

Short positions are more risky because there is an unlimited loss potential.

46
Q

What is a fixed income security?

A

Means the dividend amount is fixed.

47
Q

What are the two benefits to preferred stock?

A
  1. They receive dividend payouts first

2. They have priority claims in the event of bankruptcy

48
Q

To whom is a priority stock most attractive?

A

Income oriented investors

49
Q

Unless otherwise stated, what is the par value of a preferred stock?

A

$100

50
Q

Are dividends guaranteed for preferred stock investors?

A

No

51
Q

What is a straight preferred stock?

A

Indicates there are no special features and missed dividend payments will not be repaid.

52
Q

What is a cumulative preferred stock?

A

Means missed dividend payments accumulate and have to be repaid.

Kaplan (3 decks)

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