Unit 1 Flashcards
(36 cards)
Security
Intangible financial asset that can be bought, sold or gifted.
According to SEC vs Howey (Howey Test) it is an investment of money made to a common enterprise with the expectation of profit through the efforts of a third party.
NOT securities (Cash, fixed annuities, life insurance, personal residence, commodities)
Authorized Stock
The number of shares the company is authorized by the corporate charter to issue
Issued Stock
Authorized stock that has been sold to investors
Outstanding Stock
Shares that have been issued by the company that are in the hands of investors.
Treasury Stock
Stock a corporation has issued and subsequently reacquired.
Market Cap (Equation)
Multiply the number of outstanding shares by the current market value of a share.
Large-Cap Stocks
Also called blue-chip stocks, these are the stocks of the largest companies with a long history of steady dividend payments.
Mid-Cap Stocks
Still larger companies but smaller than large-cap stocks. Reflect characteristics of both large and small caps.
Small-Cap Stocks
Smallest stocks that are large enough to be listed on the national exchanges. Growth oriented and produce little dividends.
Penny Stocks
Not listed on the US stock exchange, these trade at less than $5 a share, highly speculative, and require customers to receive a copy of a risk disclosure document before purchase.
Penny Stock Cold-Calling Rules
SEC requires BDs to give the name of the penny stock, number of shares to be purchased, current quotation, and the amount of commission that the firm/representative receive when a rep is making a solicitation to buy to a potential customer.
Established customers (held an account with BD for at least 1 year, has made at least 3 penny stock purchases of different issuers on different days) are exempt.
Unsolicited transactions are also exempt.
Cash Dividends
Declared by BOD and distributed to all investors holding stock. When declared, they are typically paid quarterly and taxed in that year they are distributed.
Stock Dividends
Declared by BOD, issue additional shares of common stock to current stockholders instead of cash. The cost per share is adjusted downward. Dividend is not taxable, but has tax implications when shares are sold.
Typical of growth companies that invest money into R&D.
Product Dividends
Some companies issue dividends of whatever they produce to shareholders (i.e. a loaf of bread).
Declaration Date
Date a company’s BOD approves a dividend payment
Ex-dividend Date (Ex-date)
One business day before the record date. To receive a dividend, the stock must be purchased before the ex-dividend date.
Record Date
All stockholders of record (owning the stock) on the record date receive the dividend distribution.
Payable Date
The dividend disbursing agent sends the dividend checks to all stockholders on the books as owners as of the record date on this day.
Benefits of owning common stock
Voting rights, stocks are freely transferrable, capital appreciation, current income from dividends, limited liability, hedge against inflation
Risks of owning common stock
- Market risk: Investors could lose investment
- Decreased or no dividend: common stockholder have the last claim on earnings
- Low priority at dissolution: Bonds and preferred stockholders have priority over common stockholders
Stock Rights (Preemptive rights, or just Rights)
Entitle existing common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before they are offered to the public. Offers stock below current market price, with one right per share owned given to the holder (# oustanding/ # being authorized for trade = rights required per share). Typically given 30-45 days to purchase (short term). Can exercise rights, sell rights, or let them expire.
Warrants
Certificate granting its owner the right to purchase securities from the issuer at a specified price at some date in the future (long term). Usually bundled with other securities as a “sweetener” to bonds or preferred stock more appealing.
Restricted Stock
Under rule 144, securities purchased in a private placement. May not be sold until they have been held fully paid for six months. Are not subject to any restrictions after being sold (the sale effectively registers the stock).
Control Stock
Stock owned by directors, officers, or persons who own or control 10% or more of the issuer’s voting stock (Families must combine their ownership). To sell stock, the person must fill out form 144 (volume limitations are the greater of 1% of the outstanding shares of the company, or the average weekly trading volume over the most recent four weeks) and can sell over a 90 day period.
