Chap 8: Common and Preferred Shares Flashcards
Shares are most often registered in ________ form, which means that they are registered in the name of the securities firm, rather than the beneficial owner
Street Certificate
__________ offers computer-based systems to replace certificates as evidence of ownership in securities transactions.
Clearing and Depository Services (CDS)
. A group of shares traded in less than a standard trading unit is called an ______
Odd Lot
A _________ unit is a unit whose size has uniformly been decided upon by the exchanges
Standard Trading
Dividend policy is determined by a company’s _______
Board of Directors
all shareholders recorded as of this date are entitled to the declared dividend.
Dividend Record Date
The last day a stock trades cum dividend is
the second business day before the dividend record date, also known as the day before the ex-dividend date
In such a plan, the company diverts the shareholders’ dividends to the purchase of additional shares of the company
Dividend Reinvestment Plan
Reinvested dividends ____ taxable to the shareholder as ordinary cash dividends, even though the dividends are not received as cash.
Are
Participating shareholders acquire a regular, gradually increasing share position in the company at a reduced average cost per unit. This process is known as
Dollar Cost Averaging
Some dividends are in the form of additional stock rater than cash. These so-called
Stock Dividends
Usually, each common shareholder has ____ vote(s) for each share owned
One
___________ (or special shares) give the shareholder the right to participate to an unlimited degree in the earnings of a company and in its assets on liquidation, but they do not carry full voting rights.
Restricted Shares
The primary motive in using a stock split or reverse split is to make the company’s share price
affordable for investors
With a stock split, the number of outstanding shares _________ as the company will issue more shares to the current shareholders
Increases
After the stock split, the stock’s price will be
Reduced
When the market price of a company’s shares is too low, a ____________ can be used to raise the price
reverse stock split
With a reverse stock split, each shareholder’s total shareholdings in the company are _______accordingly.
reduced
___________ shareholders are usually entitled to a fixed dividend payment, subject to the discretion of the board of directors
Preferred
___________ have priority status over common shares in the event of bankruptcy or dissolution of the company
Preferred Shareholders
If the rank of various outstanding preferred share issues is equal, as to asset and dividend entitlement, the shares are described as ranking _______
Pari Passu
Because most preferreds can be considered ___________, they do not offer the same potential for capital appreciation that common shares provide for investors
Fixed income securities
Should interest rates decline, the preferreds would ______ in price, much like a bond
Increase
The __________ rate is of prime importance to the preferred shareholder.
dividend
________offer the advantage of avoiding the dilution of equity that results from a new issue of common shares.
Preferred shares
If a company’s board of directors votes not to pay one or more preferred dividends when due, the unpaid dividends accumulate in what is known as ____
Arrears
Explain the Cumulative Feature of preferred shares
Most common form of preferred shares.
If a company’s board of directors votes not to pay one or more preferred dividends when due, the unpaid dividends accumulate in what is known as arrears. All arrears of cumulative preferred dividends must be paid before common dividends are paid or before the preferreds are redeemed
Explain the Non-Cumulative Feature of Preferreds
On non-cumulative preferreds, the shareholder is entitled to payment of a specified dividend in any year, only when declared. Arrears do not accrue, and the preferred shareholder is not entitled to catch-up payments if dividends resume. For this reason, the dividend position of non-cumulative preferred shares is weak.
_______ shares can be called or redeemed by the issuer at a stated time and stated price
Callable Preferred
_________ cannot be called or redeemed as long as the issuing company is in existence. From the issuer’s standpoint, this feature is restrictive because it freezes a part of the capital structure for the life of the company. Therefore, it is rarely used.
Non-Callable Preferred
Explain the Voting Privileges of Preferred Shares
Virtually all preferreds are non-voting, as long as preferred dividends are paid of schedule. However, after a stated number of preferred dividends have been omitted, it is common practice to assign voting privileges to the preferreds.
A __________ is advantageous to preferred shareholder. If the price of shares declines in the market to, or below, a stipulated price, the fund will make every effort to buy specified amounts of the security for redemption.
Purchase Fund
A _________ often attempts to retire shares in the open market when the shares trade at or below a stipulated price, much like a purchase fund. If the shares cannot be purchased in the open market, the issuer is required to call or redeem the securities from investors to ensure that the stipulated amount of securities is retired each year.
Sinking Fund
__________ are preferred shares with normal preferences as to asset and dividend entitlement ahead of the common shares, and with no other additional features. They pay a fixed dividend for as long as they remain outstanding, and the shares trade in the market on a yield basis.
Straight Preferreds
Preferred Shares are ______ marketable than common shares.
Less
______________ enable the holder to convert the preferreds into some other class of shares (usually common) at a predetermined price and for a stated period of time
Convertible Preferred Shares
A _________ shareholder can force the company to buy back retractable preferreds for cash on a specified date, at a specified price.
Retractable Preferred
The term _____________ refers to those retractables where the redemption value may be paid in cash or in common shares, generally at the election of the issuer.
Soft Retractable Preferreds
______________ shares pay dividends in amounts that fluctuate to reflect changes in interest rates. If interest rates rise, so will dividend payments, and vice versa
Floating-rate preferred
Some preferred shares may have delayed floating-rate features. Known as __________ ,fixed-reset, or fixed floaters, these share entitle the holder to a fixed dividend for a predetermined period, after which he dividend becomes variable.
Delayed Floaters
Most Canadian preferred shares pay dividends in Canadian funds. However, it is possible for a company to create and issue preferreds with dividends and certain other features payable in, or related to, foreign funds. These products are know as __________ shares.
Foreign-pay preferred
There is additional risk in the form of foreign currency risk. If the foreign currency increases in value compared to the Canadian dollar, the dividend will _______ in value.
Increase
___________are shares that have certain rights to a share in the earnings of the company over and above their specified dividend rate.
Participating Preferreds
___________ are shares that do not pay out a regular dividend; instead, the shares mature at a pre-set future date
Deferred Preferreds
Preferred shares do not usually have a _______ date.
Maturity
The _____ refers to common shares issued to the public that are available for trading by investors, and excludes those shares held by company officers, directors, or investors who hold a controlling interest in the company.
Float
In contrast to a market-weighted stock index, stocks included in an ________ are composed of equally weighted items
average
The _________ include the 60 largest companies that trade on the TSX measured by Market Cap and is broken down into ____ sectors.
S&P/TSX 60 index,
11
The _______ is a leading exchange for small cap companies
NYSE MKT Composite
The __________ index is a market-weighted index of more than 3000 stocks that are traded over the counter. This index is dominated by smaller cap companies. Its market cap is about 30% of the NYSE market cap
NASDAQ
__________ give the holder the right to participate to an unlimited degree in the earnings of a company and in its assets on liquidation, but do not give the holder full voting rights.
Restricted Shares
_________voting shares carry a right to vote if another class of shares is outstanding and those shares carry a greater voting right on a per share basis.
Subordinate
________________ is a market cap index that includes all the listed common equities on the NYSE. There are additional indices for industrial, transportation, utility, and financial corporations.
The NYSE Composite Index
____________is a composite index of about 1600 stocks that is calculated by taking an average of the daily percentage change in each stock within the index. This equal-weighted index was created by Wilshire Associates and is the broadest available barometer of all U.S. indexes, and includes companies that are listed on the NYSE, NASDAQ, NYSE MKT, and the TSX.
The Value Line Composite Index
The Nikkei Stock exchange
Tokyo Stock Exchange Average
The FTSE 1000 Index
This index consists of the 100 largest listed companies on the London Stock Exchange and is one of the most widely followed indexes in the U.K
The DAX Performance Index
The DAX consists of 30 Major Frankfurt Stock Exchange blue-chip stocks and is the most widely followed index on the German securities market.
The CAC 40 Index
The CAC 40 index is based on 40 of the largest 100 companies listed on the Paris Stock Exchange
