Chapter 4 Equity and Derivative Securities Flashcards Preview

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Flashcards in Chapter 4 Equity and Derivative Securities Deck (52)
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1

Liquidation Proceedings

Secured bond holders - Creditors
Unsecured bondholders (debentures - Creditors
Preferred stockholders - Equity Holders
Common stockholders - Equity Holders

2

Common vs Preferred

1. Voting Rights
2. Dividends
3. Par Value
4. Additional Features

P c
No Yes, proxy
Fixed Varies
$100 Nominal Value
-May offer cumulative None
participating
or other
Features

3

Preemptive Rights

Available to common shareholders in order to maintain percentage of ownership
-Accomplishes through distribution of rights
-Short-term right enabling holders to buy below the market price before stock is offered publicly
-Current stockholders receive one right for every share owned

4

Warrenets

A security that allows holder to buy shares of commons stock at a pre-set price
-attached to an offering of a bond or preferred stock of the company
-When issued, the pre-set price is at the premium to the current market price
-Long term - expire in years; may be perpetual
-May be detached and traded separately

5

Rights are issued to whome -

Warrants are attached to a ____ issue

to shareholders

to a new issue

6

Rights are ______ term
Warrants are _____ term

short
long

7

Rights are issued at a ____ price
Warrants are initially issued at a _____

discounted
premium

8

What is American Depository Receipts (ADR)

A receipt for foreign securities held in a U.S. bank located in the foreign country.

9

ADR (American Depository Receipts) facility what

the trading of foreign securities in the U.S.

10

ADR (American Depository Receipts) receipts trade in what market

US

11

ADR (American Depository Receipts) priced and pay dividends in what currency

USD

12

ADR (American Depository Receipts) - communications are delivered in what language

English

13

ADR (American Depository Receipts)

Is it as liquid as a foreign security

NO

14

Options

Contract between two parties

15

Options

Owner

The Writer

Owner - Buyer, Holder, Long

The Writer - Seller, Short

16

Options Premium

Owner

The Writer

Owner - Pays the premium (creates debit)

Buyer - Receives the premium (creates credit)

17

Options Premium

Owner

The Writer

Owner - Acquires a right/control

The Writer - assumes an obligation

18

Selling Options the firm must provide additional what type of documents

disclosure documents

19

CALL Buyer

CALL - Buyers right to Buy Stock (Bullish)

20

CALL Seller

CALL - Sellers Obligation to Sell Stock (Bearish)

21

PUT Buyer

PUT - Buyers right to Sell Stock (Bearish)

22

PUT Seller

PUT - Sellers obligation to Buy Stock (Bullish)

23

Seller: Potential loss is limited to the

premium

24

Buyer: Potential loss is ______ (for calls) or _____(for puts)

is unlimited (for calls) or substantial (for puts)

25

Leverage

ability to control a large sum of money

26

Each options contract is how many shares

100

27

Calls are in the money when the market is

UP above the strike price

28

Puts are in the money when the market is

DOWN below the strike price

29

Break even points for Options
Calls - Buyer, owner, long

Strike Price + Premium

30

Calls - Seller, writer, short

Strike Price + Premium