Chpt 1 Equity Securities Flashcards Preview

Series 7 > Chpt 1 Equity Securities > Flashcards

Flashcards in Chpt 1 Equity Securities Deck (25):
1

What are the four classifications of common stock?

Authorized stock
Issued Stock
Outstanding Stock
Treasury Stock

2

Which valuation method of common stock has an arbitrary value?

Par Value

3

Which valuation method of common stock is the current liquidation value of a share?

Book Value

4

Which valuation method of common stock is influenced by supply and demand?

Market Value

5

Issued stock - Treasury Stock = ?

Outstanding Stock

6

What classification of common stock does NOT receive either voting rights nor dividends?

Treasury Stock

7

What type of voting benefits larger investors?

Statutory Voting

8

What type of voting benefits smaller investors?

Cumulative Voting

9

Do common stockholders vote on issuance of additional securities like common stock, preferred stock, and convertible securities?

Yes

10

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

11

Why are common stockholders known as the most junior security?

Common Stockholders are at the bottom of the liquidation priority list

12

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).

13

What type of split increases the number of shares and lessen the value?

Forward Split

14

What type of split decreases the number of shares and increases the value?

Reverse split

15

What stays the same during a forward or reverse split?

total ownership interest

16

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

17

What are two benefits of being a common stockholder?

Growth and Income (i.e. dividends)

18

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?

Stock dividends

19

What is the least common form of dividend payment?

Property dividends

20

What percentage do corporations receive exclusion on dividend income?

70%

21

What are three risks of owning stock?

Market Risk
Decreased or no Income
Low priority at dissolution

22

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.

23

A preferred stock's price fluctuates in relation to what?

interest rates

24

Describe preferred stockholders voting rights.

They do not have voting rights.

25

How often do preferred stockholders receive dividends?

Preferred stock dividends (like common stock) are not guaranteed. While they are often paid semiannually, they can be paid on any schedule that is specified in each preferred class prospectus. Payment would have to be approved by BOD.