equity securities Flashcards Preview

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Flashcards in equity securities Deck (46):
1

4 phases of common stock and definitions

authorized- approved by finra
issued- stock bought by investors
treasury stock- stock bought back by issuer
outstanding- issued shares-treasury shares

2

voting methods of common stockholders and description of each

statutory- votes split evenly
cumulative- anyway you want (benefits small investor)

3

dividends are payable as:

cash, stock, or property

4

describe a cash dividend

-price adjusts down by the amount of the dividend on the ex-dividend date

5

describe a stock dividend

-price of stock adjusts down for dividend
-investor receives additional shares of stock
-proportionate value remains same

6

when are cash dividends taxable?

taxable when received

7

when are stock dividends taxable?

taxable when shares are sold

8

short term gains (length)

less than 1 year

9

long term gains (length)

more than 1 year

10

settlement dates for cash and regular way settlements

cash- same day
regular way- trade + 3 business days

11

calculate cost basis for even stock splits:
shareholder long 100 shares @ $40
stock splits 2:1

100 shares X $40 = $4,000
$4,000 / 200 shares = $20
after split: 200 shares @ $20

12

calculate cost basis for odd stock splits:
shareholder long 100 shares @ $40
stock splits 3:2

100 shares X $40 = $4,000
$4,000 / 150 shares = $26.67
after split: 150 shares @ $26.67

13

formula for dividend (current) yield

annual dividend / current market value

14

calculate dividend yield:
XYZ stock trading @ $42 pays a $2 annual dividend

$2 / $42 = 4.76% dividend yield

15

describe preemptive rights/stock rights

-right to maintain percentage ownership
-one right per share of stock owned
-short term (1 month)

16

exercise price of rights is:

below market price of the stock

17

owner of rights may:

-exercise (if you have money available)
-sell (if no money available)
-allow to expire (not smart. owner would sell or exercise before letting them expire)

18

describe warrants

-long term (5 years)
-exercise price above market price
-sweeteners

19

warrants are usually attached to what and for what purpose are they attached?

attached to bond
-marketability
-lower interest rate on bonds

20

what are the two equity positions?

common and preferred stock

21

describe a reverse stock split adjustment

-price of stock adjusts up for reverse split
-investor will have fewer shares
-proportionate value of ownership remains the same

22

describe preferred shares

-fixed par value ($100)
-dividends are fixed stated rate (% of par)

23

describe straight (noncumulative) preferred shares

missed dividends are not payable

24

describe cumulative preferred shares

dividends in arrears and current preferred dividends must be paid before common

25

describe callable preferred shares

issuer may buy back shares after a specified date at a specified price

26

describe participating preferred shares

issuer may pay more than the stated dividend to investor

27

describe adjustable rate preferred shares

dividend tied to another rate (ex. T-bill rate)

28

right and warrants: which is marginable?

rights-non marginable
warrants-marginable

29

what type of investment would be suitable for investors seeking income?

preferred stock because dividend yield of preferred is generally higher than common shares)

30

calculate conversion ratio on a convertible preferred stock:
par=$100 Conversion price= $25

$100 (par value) / $25 (conversion price) = 4
4:1 conversion ratio

31

what types of preferred stock can be used as a possible hedge against inflation?

-participating preferred stock
-adjustable rate preferred stock

32

an ADR represents:

a foreign security in a domestic market

33

ADR shares are held by?

bank and the bank issues reciept

34

ADRs are quoted in:

US dollars

35

how are ADR dividends declared?

declared in foreign currency but paid in US dollars (ADR holder has currency risk)

36

describe bullish and bearish stock positiions

bullish- want price to go up
bearish- want price to go down

37

what is the market value of stock affected by?

earnings and dividends

38

what is the market value of stock determined by?

supply and demand

39

where are REITs traded?

-exchanges
-OTC

40

What do REITs provide?

liquidity for real estate investors

41

describe REIT 75%

-75% of assets must be invested in operating income producing real estate or mortgages

42

describe REIT 90%

-90% of net operating income must be distributed for REIT to avoid taxation as a trust

43

when disseminating information about transactions of OTC securities, 1 share equals 1 round lot for stocks trading at or above:

$175 per share

44

a company with 20 million shares paid $36 million in dividends. if the CMV of the company's shares is $36, the current yield is:

$36 million (dividends paid) / 20 millions shares = $1.80 per share
$1.80/$36 = 5% current yield

45

how are REITs taxed?

taxed at the investor's ordinary income tax rate

46

XYZ conducts a rights offering to its current shareholders at $50 per share, plus 1 right. If the current market price of XYZ is $70, what is the value of one right before the stock trades ex-rights?

formula:
(CMV-subscription price)/number of rights to purchase 1 share + 1
($70 - $50)/2 = $10