Equity Securities

Question 1

Order of Liquidation

Answer 1

Unpaid workers

The Internal Revenue Service (IRS)

Secured creditors (Secured creditors have issued loans that are secured with collateral, bonds, and so on).

General creditors General creditors have issued unsecured loans,

Subordinated debentures (Subordinated debentures are junior unsecured bonds, and holders of subordinated debentures are the last creditors to be paid in the event of corporate bankruptcy. )

Preferred stockholders Common stockholders

Question 2

Statutory Voting

Answer 2

Split votes evenly among the number of candidates on board

Question 3

Cumulative Voting

Answer 3

Use all available votes for one candidate.

Question 4

Proxy Votes

Answer 4

1. Transfer Agent responsible for sending out proxy vote ballots.
2. Proxy Fight: grouping ballots

Question 5

Authorized Shares

Answer 5

the number of shares of stock that a corporation can issue.

The issuer usually holds back a large percentage of the authorized stock, which it can sell later as needed through a primary offering.

Question 6

Issued Shares

Answer 6

Amount of shares sold to the public including founding shareholders

Question 7

Unissued Shares

Answer 7

May be kept up to 3 years

Question 8

Outstanding Shares

Answer 8

number of shares in the investors hands.

Outstanding = Issued - Treasury

Question 9

Treasury Stock

Answer 9

shares repurchased by the company.

Question 10

Par Value of Common Stock

Answer 10

Bookkeeping value (set at time of issue). Market price is usually different.

Question 11

Amount over Par Value

Answer 11

additional paid-in capital, paid-in surplus, or capital surplus.

Question 12

Tender Offer

Answer 12

Takeover bid. Corporation, person, or group. Usually announced in a public communication and offering a premium to the current market price.

Tender offers are good for a specified period, and a minimum number of holders of shares (in other words, holders of more than 50 percent of the outstanding shares of the target corporation) must agree; otherwise, the offer is canceled.

Question 13

Exchange Offers

Answer 13

Sometimes, a corporation decides to exchange some of its securities for other ones. A corporation may offer its bondholders the right to exchange certain debt securities for stock to reduce the corporation’s debt.

Question 13

Acquisitions

Answer 13

For one corporation to acquire another, it must obtain majority ownership of the target corporation.

Question 14

Round Lot

Answer 14

Typically 100 shares of stock

Question 15

Reverse Split

Answer 15

Alternatively, companies may use a reverse split, consolidating shares to raise the price of the stock and perhaps keep the price of their stock from dropping too low and possibly face being delisted.

Question 16

Forward Stock Split

Answer 16

Number of shares increases and the price decreases.

Use the following calculations to figure out an investor’s position after an A-for-B split:

Question 17

Reverse Stock Splits

Answer 17

In a reverse split, the market price of the security increases, and the number of shares decreases.

In the event of a reverse split, investors usually have to send their old shares to the transfer agent to receive the new shares.

Question 18

Dividends

Answer 18

each shareholder is entitled to a pro rata share of dividends, meaning that every shareholder receives an equal proportion for each share that she owns.

Investors can’t vote on dividends. Just board members.

Question 19

Stock Dividends

Answer 19

Just like forward stock splits. More shares.

Stock Dividends are not taxable.

A way to make stock more attractive and available. Liquidity

Question 20

Preferred Stock

Answer 20

Although preferred stock (sometimes called preferreds) has some characteristics of both equity and debt securities,

No voting rights (unless they don’t receive their dividends)

By contrast, issuers of preferred stock are required to pay consistent cash dividends. Preferred stock generally has a par value of $100 per share (although it could be $50, $25, and so on) and tends to trade in the market much closer to its par value than common stock does.

Question 21

Preferred Stock Dividend

Answer 21

The dividend (sharing of profits) that preferred stockholders receive is based on par value.

To calculate the annual dividend, multiply the percentage of the dividend by the par value.

If the Preferred Stock is cumulative, the owner of stock is due missing dividends.

Question 22

Non-Cumulative Preferred Stock

Answer 22

Not owed a dividend in arrears if missed.

Question 23

Cumulative Preferred

Answer 23

More common.

Question 24

Convertible Preferred

Answer 24

Convertible preferred stock allows investors to exchange their preferred stock for common stock of the same company at any time.

The conversion ratio helps you determine a parity price at which the convertible preferred stock and common stock would be trading equally.

Question 25

Callable Preferred

Answer 25

Callable preferred stock allows the issuer to buy back the preferred stock at any time after a defined date at a price (the call price) on the certificate.

Question 26

Participating Preferred

Answer 26

Although it’s rarely issued, participating preferred stock allows investors to receive common dividends in addition to the usual preferred dividends.

Question 27

Prior (Senior) Preferrred

Answer 27

senior preferred stockholders receive compensation even before other preferred stockholders.

Question 28

Adjustable (floating Rate) Preferred

Answer 28

Holders of adjustable preferred stock receive a dividend that’s reset every six months to match movements in the prevailing interest rates.

Question 29

American Depository Receipts (ADR)

Answer 29

receipts for foreign securities traded in the United States. ADRs are negotiable certificates (they can be sold or transferred to another party) that represent a specific number of shares (usually, one to ten) of a foreign stock.

Question 30

RIGHTS

Answer 30

The right to by new stock at a set discount.

allow existing stockholders to purchase new shares of the corporation at a discount directly from the issuer, before the shares are offered to the public. Stockholders receive one right for each share they own.

The rights are marketable, and stockholders may sell them to other investors.

investors. If existing stockholders don’t purchase all the shares, the issuer offers any unsold shares to a standby underwriter: a broker–dealer that purchases any shares that weren’t sold in the rights offering and resells them to other investors.

Question 31

WARRANTS

Answer 31

The right to buy common stock at a set price.

Warrants are certificates that entitle the holder to buy a specific amount of stock at a fixed price and are usually issued along with a new bond or stock offering.

Have no voting rights and receive no dividends.`

Question 32

UNITS

Answer 32

Bundled bonds and warrants or bundled stock and warrants are called units. Unlike rights, warrants are long-term and sometimes perpetual (without an expiration date).

Question 33

Ex-Dividend Date

Answer 33

(the first day the stock trades without a dividend).