Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Kaplan > SIE Ch. 2 > Flashcards

SIE Ch. 2 Flashcards

1
Q

What are two common benefits to owning equities?

A

Capital gain and dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How is a companies net worth calculated?

A

Business assets - liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is ownership percentage in relation to a single stock?

A

Each stock is equal to the next

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Benefits to owning common stock? 4

A
  1. Capital gains
  2. Dividends
  3. Limited liability (only loose what you invest)
  4. Protection from inflation (if the money were to remain in cash)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define limited liability?

A

Clients only can loose the amount invested. Essentially can own a company without putting personal assets on the line.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Forms of dividends?

A
  1. Cash
  2. Stock
  3. Property
  4. Sample products
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

When are dividends generally paid?

A

Quarterly

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Rights of common stock holders?

A
  1. Vote for board of directors
  2. Freely transferable
  3. Access to books
  4. Access to financial statements
  5. Preemptive rights to any additionally issued shares
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the risks of common stock?

A
  1. Market fluctuation
  2. Loss of dividend
  3. Loss of complete principle (bankruptcy)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Who decides what dividends are and when to receive them?

A

Board of directors

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

In the event of bankruptcy, what is a common stock holders right to assets?

A

The lowest of all stock holders

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What are the two main types of bankruptcy?

A

Reorganization and liquidation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Differences between those two?

A

Reorganization means the company will keep its property and keep doing business; liquidation means cease in business activities and sell of all assets and property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

General formula for repayment after bankruptcy?

A
  1. Taxes and wages
  2. Debt holders
  3. equity holders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

In what ways is preferred stock like a debt security?

A

It has a fixed rate of return, unlike common stock.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How is the dividend stated? How often are they?

A

Annually, and they are stated as a percentage of par value.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is typically par value?

A

$100 unless otherwise stated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How would you identify a preferred stock with a $100 par value that pays $6 annual dividends?

A

6% preferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How would you identify a preferred stock with NO par and a $6 annual dividend?

A

$6 no-par preferred

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Which has higher growth potential, common or preferred?

A

Common

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Two main advantages of preferred?

A
  1. Dividends are paid first over common

2. Priority over common in bankruptcy

22
Q

Four risks associated with preferred?

A
  1. Purchasing Power (inflation may make the dividend less appealing over time)
  2. Interest rate sensitivity (rates go up the value of PS goes down)
  3. Possible loss of dividend
  4. Still not paid ahead of debtors in bankruptcy
23
Q

What is straight preferred stock?

A

NON cumulative; in the event of missed dividends nothing is paid back.

24
Q

What is cumulative preferred stock?

A

Dividends have to be paid back, anything that’s missed will be paid when the next dividends are paid (missed + new).

25
Q

What are callable preferred stock?

A

Issuer can call or buy back the stock at a specified price after a specific date. The company does this to replace a high rate security with a lower one (refinance). These are bought back at a a premium (more than they are worth).

26
Q

What is convertible preferred?

A

Can be converted to common stock by the owner when it is profitable to do so. This one has a lower dividend rate than other preferred stock.

27
Q

What is adjustable rate preferred?

A

The rate of the dividend can be adjusted by the issuer whenever (sometimes quarterly).

28
Q

What is participating preferred?

A

Gives the owner a chance to participate in profit sharing. The dividend would state something like 6% with participating to 9% (3 percent profit sharing).

29
Q

Which of these are the WORST option for a client looking for income from owner preferred stock?

A

Adjustable rate because the dividend may go down.

30
Q

What are control securities?

A

Those owned by a director, officer, or persons owning more than 10% issuer.

31
Q

What are restricted securities?

A

Those acquired through means other than a registered public offering.

32
Q

What is the holding period for a restricted stock?

A

6 months

33
Q

When are there volume limits for selling restricted/controlled?

A

When owned by an affiliate insider

34
Q

What are penny stocks?

A

Those trading at less than $5 per share

35
Q

What is involved in buying a penny stock?

A

The buyer most sign a disclosure agreement

36
Q

What must be done when cold calling on penny stocks?

A

Suitability must be established and commission must be disclosed.

37
Q

What makes a client an established customer?

A

Held an account for at least a year and purchased at least three penny stocks from different issuers.

38
Q

What is the bond maturity date?

A

The date the investor receives the principle back.

39
Q

What is a term maturity date?

A

Principle is paid all at once

40
Q

What is a serial maturity date?

A

Portions of principle are paid back over time.

41
Q

What is balloon maturity date?

A

Some principle paid during life of bond, most is paid at once.

42
Q

What is the coupon of a bond?

A

The interest rate

43
Q

What is a bonds par value?

A

$1,000

44
Q

Two other common phrases for coupon rate?

A

Nominal or yield rate

45
Q

How much does a 5% coupon pay?

A

$50 per year (5% x $1,000)

46
Q

What two market forces affect bonds?

A

Supply/demand and interest rates

47
Q

What happens to the coupon rate as the price of a bond fluctuates?

A

It always stays the same

48
Q

What is nominal yield

A

Stays the same, coupon yield

49
Q

What is current yield?

A

Measure of bonds annual coupon payment. Annual coupon payment / market price = current yield

50
Q

Yield to maturity?

A

Reflects annual return to maturity

51
Q

Yield to call?

A

Annual return until call date

Kaplan (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions