Stocks

Question 1

Rights of a stock holder

Answer 1

1. Certificate
2. Vote for board members
3. Limited financial info
4. Preemptive rights (buy new shares at a discount)
5. Share in corporate profits

Have limited liability

Question 2

Voting structure

Answer 2

of shares held x # of vacancies on board = # of votes

B shares dilute voting power

Question 3

Voting types

Answer 3

1. Statutory - votes divided equally between all candidates

2. Cumulative - votes divided up any way

Question 4

Authorized shares

Answer 4

Shares a company is allowed to issue based on corporate charter

Question 5

Unissued shares

Answer 5

Portion of authorized shares kept by company, shares may be kept by company for up to 2 or 3 yrs (shelf “life” registration)

Question 6

Issued shares

Answer 6

Shares sold to the public

Question 7

Treasury stock

Answer 7

Shares sold to the public that are repurchased by the company.

Question 8

Reasons for treasury stock

Answer 8

1. Avoid hostile takeover
2. Use as bonus for employees
3. Increase demand (price) for existing shares
4. Use as collateral to borrow

No voting power, no divs

Question 9

Outstanding shares

Answer 9

Issued - treasury

Question 10

Stock par value

Answer 10

Price used by company for bookkeeping, arbitrary

Question 11

Stock splits

Answer 11

Make mkt price more attractive, approved by shareholders, does not change % of ownership or value of investment, just may make it easier to buy round lots

3 types: even, reverse, uneven

Question 12

Preferred stock

Answer 12

Par = $100, div is expressed as % of par, paid qtrly, no voting rights

Question 13

Convertible preferred

Answer 13

Can convert preferred to common at any time, usually lower div, conversion price and conversion ratio

Par/conversion price = conversion ratio

Question 14

Callable preferred

Answer 14

Company can buy back, pays higher div

Question 15

Participating preferred

Answer 15

Receive both preferred and common divs

Question 16

Prior (senior) preferred

Answer 16

Preference above other preferred stock in bankruptcy situations

Question 17

Cumulative preferred

Answer 17

Can delay paying full div, but must pay back before common div

Question 18

ADR

Answer 18

American depository receipts - foreign stocks traded in US mkts, issued by foreign branch of US bank, bank sponsored, paid in US dollars, no voting privileges, or preemptive rights, subject to currency risk

Question 19

Warrants

Answer 19

Buy additional shares of stock at fixed price (sweetener), can be traded separately, often carry expirations, usually long term, no voting rights, no divs

Question 20

Rights

Answer 20

Preemptive rights allow investors to maintain proportional ownership when a company issues new shares, purchased directly at a discount, automatically received by common stockholders (not preferred), short term 30 days, can be traded separately.

1 share = 1 right

Question 21

Stand by UW

Answer 21

Buys stock not purchased in rights offering and resells

Question 22

Value of a right

Answer 22

Cum (with) rights:

(Mkt price - discount price)/# of rights for 1 share + 1

Ex (w/o) rights:

(Mkt price - discount price)/# of rights for one share