Flashcards in Chpt 1 Equity Securities Deck (25):
What are the four classifications of common stock?
Which valuation method of common stock has an arbitrary value?
Which valuation method of common stock is the current liquidation value of a share?
Which valuation method of common stock is influenced by supply and demand?
Issued stock - Treasury Stock = ?
What classification of common stock does NOT receive either voting rights nor dividends?
What type of voting benefits larger investors?
What type of voting benefits smaller investors?
Do common stockholders vote on issuance of additional securities like common stock, preferred stock, and convertible securities?
What does preemptive rights (also known as antidilution provision) allow the stockholder to achieve?
Gives investors the right to maintain a proportionate interest (“same percentage”) in a company’s stock
Why are common stockholders known as the most junior security?
Common Stockholders are at the bottom of the liquidation priority list
Describe the percentage change in price and quantity during a forward split.
The percentage decrease in price will always be less than the percentage increase in shares. Ex. 2:1 split, the # shares doubles (a 100% increase) whereas the price of the stock is halved (50% decrease).
What type of split increases the number of shares and lessen the value?
What type of split decreases the number of shares and increases the value?
What stays the same during a forward or reverse split?
total ownership interest
A forward split (increase/decrease) earnings per share and a reverse split (increase/decrease) earnings per share.
Forward split decreases earnings per share
Reverse split increases earnings per share
What are two benefits of being a common stockholder?
Growth and Income (i.e. dividends)
What type of dividend is likely to be paid by companies that wish to reinvest earnings for R&D; Ex. Tech companies, aggressive growth companies, and new companies?
What is the least common form of dividend payment?
What percentage do corporations receive exclusion on dividend income?
What are three risks of owning stock?
Decreased or no Income
Low priority at dissolution
Describe the difference a long and short seller may experience.
A long investor’s losses are limited to his total investment in a stock. A short seller’s losses are theoretically unlimited because there is no limit to how high a stock’s price may climb.
A preferred stock's price fluctuates in relation to what?
Describe preferred stockholders voting rights.
They do not have voting rights.