unit 1 Flashcards
1
Q
security
A
an intangible financial asset that may be bought, sold, or gifted between persons
2
Q
2 ways a security can be represented
A
1: paper certificate
2: held in an electronic record
3
Q
commodity
A
hard asset; gold, beef, orange juice, oil
4
Q
futures
A
an active market in a derivative investment in commodities
5
Q
The Howey Test tell us that a security is:
A
1: an investment of money made into
2: a common enterprise
3: with the expectation of profit
4: through the efforts of a third party
6
Q
examples of securities:
A
stocks bonds, notes and debentures options mutual funds jumbo CDs depository receipts units in an investment variable life and variable annuities
7
Q
cryptocurrencies are considered a
A
commodity; no third-party management
8
Q
2 basic securities:
A
stocks (equities) and bonds (debt)
9
Q
most common type of debt:
A
bonds
10
Q
capital appreciation
A
individual investors benefiting from an increase in the price of shares
11
Q
dividends
A
the share of earnings through a distribution of profits
12
Q
equities represent
A
ownership in the company
13
Q
a company _____ stock to raise ______.
A
issues (sells); capital (money)
14
Q
stockholders or shareholders
A
investors who buy stock in the company; company’s owners
15
Q
each share of stock entitles its owner to a portion of the company’s:
A
earnings and a vote in major management decisions
16
Q
board of directors
A
elected by stockholders to handle day-to-day details of operation
17
Q
common stock can be classified as:
A
authorized
issued
outstanding
treasury
18
Q
authorized stock
A
raising money by selling an authorized number of shares decided on by the founders of the business; most of the time a company does not issue all authorized shares
19
Q
if a company wants to issue more shares than authorized,
A
the charter must be amended through stockholder vote
20
Q
issued stock
A
authorized stock that has been sold to investors
21
Q
when a company issues (sells) fewer shares than the authorized number,
A
it normally reserves the unissued shares for future needs
22
Q
authorized stock that wasn’t issued is reserved for future needs including
A
1: raising new capital for expansion
2: paying stock dividends
3: exchanging common stock for outstanding convertible bonds or preferred stock
23
Q
authorized but unissued stock does not carry the rights of issued shares and is
A
not considered in determining a company’s total capitalization
24
Q
authorized but unissued stock is similar to
A
blank checks in your checkbook
25
outstanding stock
any shares that a company has issued and are in the hands of investors
26
treasury stock
stock a corporation has issued and subsequently reacquired
27
treasury stock
stock a corporation has issued and subsequently reacquired
28
treasury stock does not carry the rights of
outstanding common shares; voting rights and the right to receive dividends
29
analyst are only concerned with what type of stock?
outstanding shares
30
common stocks are often classified by the
size of the corporation
31
the measurement to classify the size of a corporation
market cpitalization; market cap
32
determine market cap by
multiplying the number of outstanding shares by the current market value (CMV) of a share; (outstanding x CMV)
33
CMV stands for
current market value
34
large-cap stocks
the largest companies; rapidly growing tech companies or big, long-established firms
35
large-cap companies that have a long history of steady dividend payments are often called
blue-chip stocks
36
mid-cap stocks
a company that is too large to be a small cap, but not large enough to be large cap; reflect characteristics of both
37
small-cap stocks
smallest stocks large enough to be listed on national exchanges; oriented towards growth and produce very little dividends
38
penny stocks
unlisted security trading at less than $5 per share
39
unlisted stocks
not listed on the U.S. stock exchange; penny stocks
40
equity securities defined as a penny stock are considered
highly speculative
41
SEC rules require customers to receive _______ before their initial transaction in a penny stock
risk disclosure document; must be returned dated and signed by customer
42
regardless of the activity in the account, if the account holds penny stocks, the broker-dealer must provide
monthly account statements to the customer
43
the broker-dealers monthly statement to penny stock holders must include
market value and the number of shares for each penny stock held, as well as the issuers name
44
the broker dealer must determine what when cold-calling a customer?
suitability
45
how is suitability determined when a broker cold-calls a customer?
information about the buyer's financial situation and objectives
46
the customer must sign a ____ before any initial penny stock trades may be placed
suitability statement
47
when a broker dealer cold calls a customer, they must disclose:
1: the name of the penny stock
2: the number of shares to be purchased
3: a current quotation
4: the amount of commission that the firm and the representative receive
48
an established penny-stock customer is someone who:
1: has held an account with the BD for at least 1 year (and has made a deposit of funds or securities)
2: has made at least 3 penny stock purchases of different issuers on different days
49
established penny-stock owners are exempt from:
suitability requirement
50
dividends are
distribution of a company's profits to its shareholders
51
who are entitled to dividends?
investors who buy stock or mutual funds
52
when are dividends distributed to investors
if and when the BOD votes
53
who are automatically sent any dividends to which their shares entitle them?
shareholders
54
dividends may be paid in 3 ways:
1: cash dividends
2: stock dividends
3: product dividends
55
cash dividends
normally distributed by check if the investor holds the certificate, are auto deposited to a brokerage account
56
street name
shares held in a brokerage account in the firm's name to facilitate payment and delivery
57
when declared, cash dividends are typically paid
quarterly
58
when declared, taxes for cash dividends are
paid in the year they are distributed
59
stock dividends
the company issues additional shares of its common stock as a dividend to its current stockholders instead of cash
60
when are stock dividends typical?
growth companies that invest their cash resources in research and development
61
when a company BOD wishes to reinvest its profits for business purposes rather than pay cash the declare
stock dividends
62
the stock dividend itself is
not taxable but the adjusted cost per share will impact the tax consequences when shares are sold
63
adjusted cost per share
new cost basis
64
product dividends
some companies will pay a dividend by sending a sample of the company's product to shareholders
65
most rare form of dividend
product dividend
66
cash dividends may be taxed as
1: qualified
2: non-qualified
67
non-qualified cash dividend
taxed at the investor's ordinary income tax rate
68
the maximum tax rate on qualified dividends is
specified by IRS tax code and will depend on the investor's income tax bracket
69
the higher the investor's income tax bracket
the higher the tax on qualified dividends will be, up to the specified maximum
70
the maximum tax rate on qualified cash dividends will
always be lower than the investor's ordinary income tax rate
71
dividend disbursing process:
1: declaration date
2: ex-dividend date (ex-date)
3: record date
4: payable date
72
declaration date
when a company's BOD approves a dividend payment; designates payment date and the record date
73
ex-dividend date (ex date)
one day before the record date; an investor must purchase the stock 2 business days before the record date to qualify for the dividend
74
if the stock is purchased on or after the ex-date
the new owner has purchased the stock "ex" without the dividend and is therefore not entitled to receive it
75
record date
the stockholders of record (those who own stock) on the record date receive the dividend distribution
76
payable date
dividend disbursing agent sends dividend checks to all stockholders whose name appear on the books as owners as of the record date
77
investors are taxed for the year the dividend is paid based on
the payable date
78
D.E.R.P.
declaration date
ex date
record date
payable date
79
common shareholders benefits
voting rights
opportunity for capital appreciation
current income
limited liability
80
proxy
an absentee ballot
81
shareholders have the right to
sell or gift their common stock
82
without this feature there would be no stock market
freely transferrable common stock
83
a shareholder can cast how many votes?
1 per share of stock owned
84
two types of stockholder voting:
1: statutory voting
2: cumulative voting
85
statutory voting
allows stockholders to cast 1 vote per share owned for each item on a ballot; need majority to be elected
86
cumulative voting:
allows stockholders to allocate their votes in any manner they choose
87
cumulative voting benefits who?
the smaller investor
88
statutory voting benefits who?
large shareholders
89
the word preempt means
to put oneself in front of another
90
common stockholders have the right to
- examine BOD meeting minutes
- examine the list of shareholders
- receive an audited set of financial statements of the company's performance
91
growth
capital gains; an increase in the market price of securities
92
stock rights are known as
preemptive rights
93
stock rights
allow existing common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company- offers them to the general public
94
rights offering allows
stockholders to purchase common stock below the current market price
95
the number of rights required to purchase one share of the new issue depends on what?
the number of outstanding shares and the number of new shares offered
96
a stockholder who receives rights may
1: exercise the rights to buy stock by sending the rights certificates and a check for the required amount to the rights agent
2: sell the rights and profit from their market value
3: let the rights expire and lose their value (not likely)
97
rights certificates are
negotiable securities
98
warrant
a certificate granting its owner the right to purchase securities from the issuer at a specified price
99
what is a long-term instrument that gives the investor the option of buying shares at a later date at the specified (exercise)?
a warrant
100
while the exercise price of a warrant is higher than the current market value when the warrants are issued,
it is hoped that the exercise price will be below current market value when the warrants are eventually exercised
101
what offerings are usually bundled as units with bonds or preferred stock to make them appear more attractive to investors?
warrants
102
short term, given to existing shareholders, allows one purchase shares below current market value
rights
103
long term, bundled with other securities, allows someone to purchase shares at a price that is above current market value at the time they were issued?
warrants
104
rule 144 applies to
1: restricted stock
2: control stock
105
restricted stock (securities)
stock acquired through some means other than a registered public offering
106
a security purchased in a private placement is a
restricted security
107
restricted securities may not be sold until
they have been held fully paid for six months
108
when ____ is issued, they will have a restrictive legend on the certificate warning about the holding period restriction
restricted stock
109
restricted stock is also referred to as
legended, or legended certs
110
before restricted stock are sold,
the issuer must release (remove) the restriction; allowing the shares to trade freely
111
the phrase "the sale effectively registers the stock" refers to
buyers of stock being sold subject to rule 144 when issued are not subject to any restrictions if they choose to resell
112
control stock
stock owned by directors, officers, or persons who own or control 10% or more of the issuer's voting stock
113
if there is a 10% or more interest held by immediate family members, then all those family members owning voting stock are
control persons
114
control person are also referred to as
an affiliate
115
if a control person wants to sell shares, that person must
complete a form 144
116
form 144
is used to determine the number of shares the control person may sell over a 90-day period
117
volume limitations under rule 144 are the greater of
1: 1% of the outstanding shares of the company
2: the average weekly trading volume over the most recent four weeks
118
control persons are ____ subject to volume limitations
always
119
warrants are
long term and normally attached to a fixed-income offer
120
non-affiliates have no volume limitations in the sale of
registered stock
121
the volume limitation for non-affiliates ends after 6 months
when the shares are restricted
122
american depository receipts (ADR)
a type of equity security designed to simplify foreign investing for americans
123
an ADR is created when
common shares are purchased in the foreign company's home market
124
each ADR may represent
1 or more shares of the foreign company's shares held on deposit
125
any trading profits from the ADR would only be taxable
in the united states
126
ADR taxation
tax owed to the home country of the underlying foreign stock issuer
127
how is ADR taxation collected?
the amount of tax withheld by the foreign government is applied as a credit against the investor's U.S. tax liability
128
ADRs are issued and paid in
US dollars
129
When is ADR considered risky?
currency and political risk of the ADR isuer
130
preferred stock
an equity security that represents a class of ownership in the issuing corporation
131
the rate of return on a preferred stock is
fixed rather than subject to variation; similar to a debt security
132
a preferred stocks annual dividend represents
its fixed rate of return
133
preferred stock is a key attraction for
income-oriented investors
134
always assumer preferred par value is
$100 unless stated otherwise
135
preferred stock shareholders generally have
no voting rights and no preemptive rights
136
all corporations issue common stock but not all corporations issue
preferred stock
137
preferred stock do not have the same growth potential as
common stock
138
benefits of owning preferred stock
1: dividend preference
2: priority at dissolution over common stock
139
risks of owning preferred stock
1: purchasing power risk
2: interest rate sensitivity
3: decreased or no dividend income
4: priority at dissolution
140
types of preferred stock
1: straight
2: cumulative
141
straight preferred stock
no special features beyond the stated dividend payment
142
cumulative preferred stock
accrues payments due its shareholders in the event dividends are reduced or suspended
143
dividends due cumulative preferred stock accumulate
on the company's books until the corporation's BOD decides to pay them
144
when a company's BOD decide to resume dividend payments, cumulative preferred stockholders
receive current dividends plus the total accumulated dividends before any dividends are paid to common shareholders
145
callable preferred stock
a company can buy back from the investors at a stated price after a specified date
146
callable preferred stock is similar to
refinancing a mortgage
147
convertible preferred
the owner can exchange the shares for a fixed number of shares of the issuing corporation's common stock
148
adjustable-rate preferred
issued with adjustable dividend rate; adjusts to current interest rates
149
adjustable preferred stocks can be adjusted
as often as quarterly
150
investors looking for income through preferred stocks would not choose
adjustable-rate preferred stock
151
participating preferred stock
offers a share of corporate profits that remain after all dividend and interest due to other securities are paid
152
the percentage of which participating preferred stock investors receive is
noted on the stock certificate
153
ADRs are issued by a depository bank and the bank is the
registered owner of the shares
154
Depository banks are not required to
pass voting rights through to the ADR holders
155
preferred stock owners have ______ voting rights
zero
