Chapter 1 - Securities Flashcards
What is the accounting equation?
Assets = Liabilities + Equity
What is the equation for Net worth?
Networth = Assets - Liabilities
What is authorized stock?
Stock declared in the company charter
Why would a company purchase its shares? What is it called?
- To increase its EPS, employee stock option plans, future acquisitions
- Treasury Stock
What is par value for a stock?
An arbitrary value assigned to the stock in the company charter
What is the book value of a stock?
This is what the stockholder could expect to receive in the case of liquidation.
(Assets - Liabilites)/Outstanding Shares
In the voting of board members which voting style empowers the minority investor?
Cumulative Voting - Stockholders allocate votes as they see fit
What is a stock split?
Increases the shares of a company and reduces the purchase price of the stock
If an investor has 100 shares in a company at $60 and the firm announces a 5:4 split how many shares would the investor have and what would the value per share be?
Current Value = 100 * $60 = $6000
100 * 5 = 500, 500/4 = 125 shares
125 * x = $6000, ($6000/125 = $48)
What is preferred stock?
Has features of both equity and debt. Ownership in the company but no appreciation like common. Has a fixed dividend and changes with interest rates.
What is the current yield on a stock that has a quarterly dividend of $1.25 and a current market price of $60?
$1.25 * 4 = $5.00
$5.00/$60 = 0.083 or 8.3%
What is participating preferred stock?
If a company does well and offers a share in the profits after liabilities have been paid.
Which dividend usually has the highest rate?
Callable preferred, because it has the highest amount of risk since it might be called, then straight preferred would have next highest risk.
An investor buys 200 shares of stock at a price of $60. The stock declares a 20% stock dividend. How many shares would the investor receive and what is the new cost basis?
Current value = 200 * 60 = $12,000
Stock dividend = 200 * 1.2 = 240, or 40 new shares
$12,000/240 = $50 cost basis
What is the function of the transfer agent and registrar?
Transfer agent maintains records of ownership, cancels old issues, and issues new certificates. The registrar is outside/independent of the company and ensures there are no more shares than authorized, oversees transfer agent so to speak.
