3: EQUITY SECURITIES (197) Flashcards
does the par value increase/decrease on stock splits?
Yes
Are mutual funds subject to the 5% markup policy?
No
securities that are sold by a prospectus are not subject to the 5% markup policy
T/F: Excess capital losses can be carried foward to use against gains or income indefinitely
True
can only use $3k/year tho
T/F: Preferred stock is considered fixed income
True
Straight preferred stock
No past dividends like cumulative
T/F: Preemptive rights allow stockholders to maintain their proportionate ownership when the corporation wants to issue more stock.
True
Is the OTC market negotiated?
Yes
its a negotiated market
Does the SEC regulate the OTC market?
Yes
For formula for theoretical value of right after ex-date, does it have a 1 or no?
w/o 1
If after ex-date, formula has no 1
If capital losses exceed capital gains, up to ____ make be deducted against taxable income
$3k
How long to hold a security before you get long teerm capital gains tax treatment
Own for MORE than 12 months
According to SEC Rule 15g-2, firms must wait at least ____ business days after sending the risk disclosure document to customer before executing first penny stock trade
2 business days
T/F: SEC rules require that customers be given a copy of the risk disclosure document before their first transaction in a penny stock
True
Are securities sold with a prospectus subject to the 5% markup policy?
No
Transactions in securities that are sold by a prospectus are not subject to the 5% markup policy.
[Theoretical value of rights] If question asks for the value of a right before ex date, is formula with a 1 or without a 1?
With a 1
If before ex date, formula has a + 1
Are dividends from ADRs declared in foreign currency or USD?
Foreign currency
Although paid in USD
Share holder will always receive _____ right(s) for every share of common stock they own
1 right
Shareholders always get one right per share
T/F: FINRA is the authorized SRO for the OTC market.
True
Are stock dividends taxable in the year they are received, or when the shares are sold?
When the shares are sold
Do ADRs fall under the oversight of the SEC?
Yes
Is the exersise price of a warrant usually above or below CMV?
above cmv
Are rights ever given to preferred stock holders?
No
Secutities in the ___ market are not quoted on any U.S quotation system
Grey market
Can markups exceed the 5% markup policy?
Yes
Five percent is a guideline, and markups can exceed it.
3 things that are considered portfolio income
1) dividends
2) interest
3) net capital gains
Does a stock split affect preferred stock?
No
preferred is never affected by a stock split
Can straight debt securities be listed on NASDAQ?
No
Nasdaq for equity and equity equivalent (like convertible bonds) ony
Preferred shareholders will always get ___ right(s) for every share they own
0
Preferred shareholders are never given rights
Is there interest expense with stock?
No
Is exersise price of stock right usually above/below CMV?
below CMW
Which act regulates the extension of customers?
SEC of 1934
Does FINRA regulate the OTC market?
Yes
Does the 5% markup policy regulate prices, or commissions and markup?
Commissions and markup
What tax rate are normal dividends taxed at?
icome tax rate
What does SIPC do?
Protect customer assets if BD fails
Wha rate are qualified dividends taxed at?
capital gains tax rate
which is lower than income tax on normal dividends
T/F: All securities sold via prospective are subject to the 5% markup policy
False
No securities that are sold by prospectus are subject to the 5% markup policy
Formula for outstanding shares
Issued shares - treasury shares (shares repurchased by corp)
Formula for treasury shares (shares repurchased by company)
Issued shares - outstanding shares
Formula for the current dividend yield
Annual dividend / current market value
Example: A stock trading at $42 pays a $2 annual dividend.
$2 / $42 = 4.76% dividend yield
(Remember to watch out if they give u quarterly, not annual dividend)
Who determines the declaration date for a dividend
Board of directors
Who determines the ex-dividend date (which is 1 business day before record date)
Determined by FINRA or SRO
This is the only date not determined by the company’s board of directors
Who determines the record date (date trade must settle by for buyer to receive the dividend)
Board of directors
Who determines the payable date (date dividend is distributed)
Bird of directors
When are cash dividends taxable?
Taxable when received
Unlike stock dividends, which are taxable when the shares are sold
When are stock dividends taxable?
When the shares are sold
Cash dividends are taxable when received
Is the cost basis of the stock adjusted when a stock dividend is received?
Yes
Example: 100 shares @ $55 = $5,500
After 10% dividend, position becomes:
110 shares @ $50 = $5,500
Is the cost basis of stock adjusted when a stock split occurs?
Yes
Example: 100 shares @ $30 = $3,000
After 2-for-1 split, position becomes:
200 shares @ $15 = $3,000
(Technically, it’s taxable when the shares are sold)
Does preferred stock have a fixed par value?
Yes
Usually $100
How are dividends for preferred stock stated?
They are a fixed rate stated as a percentage of par
Example: XYZ 3.5% preferred would pay a $3.50 annual dividend
(0.35 x $100 par value = $3.50 annual dividend)
Participating preferred stock
Pays normal preferred dividend plus an additional dividend
The additional dividend ensures that the shareholders receive an equivalent dividend as common shareholders.
Yield to maturity is another name for a bond’s ____
Basis
T/F: “plain vanilla” describes preferred stock issues
True
Plain vanilla means there are no added features, just the fixed dividend.
T/F: The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.
True
“The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.”
