Chapter 1

Question 1

Debt Financing

Answer 1

`The practice of raising money by issuing debt securities

Question 2

non-cumulative preferred stock

Answer 2

Preferred stock that doesn’t entitle the shareholder for the past missed payments once the dividend payments resume again

Question 3

Cumulative preferred stock

Answer 3

Preferred stock, which entitles the shareholders for past missed payments to be paid when the dividend payments resume again.

Question 4

Creditors

Answer 4

Parties/People that have lent money to the company

Question 5

participating preferred stock

Question 6

Adjustable-rate preferred stock

Answer 6

Preferred stock that ties returns and dividends to an outside interest rate, most often a treasury bill rate

Question 7

Established customer

Answer 7

A customer who has had her assets with the firm for atleast 1 year and has purchased unsolicited penny stocks from atleast 3 different issuers on 3 separate days

Question 8

American Depository Receipts

Answer 8

A certificate issued by a U.S. Bank for the purpose of trading a specified number of shares of a foreign corporation in the U.S. stock market.

Question 9

Derivative Suit

Answer 9

A lawsuit that shareholders may file on behalf of the corporation against the directors to safeguard their rights

Question 10

Convertible preferred stock

Answer 10

Preferred stock that allows the holder t convert preferred shares into common shares at a set conversion ratio.

Question 11

Risk-free rate of return

Answer 11

Return on investing in U.S. Treasuries or other risk free investments

Question 12

Conversion Parity

Answer 12

The stock price at which a convertible bond can be exchanged into equity without gain or loss to the shareholder

Question 13

Authorized shares

Answer 13

Shares that a corporation is authorized to issue

Question 14

Physical certificate

Answer 14

A printed stock certificate that represents an ownership in the company

Question 15

Direct Registration System (DRS)

Answer 15

An electronic system of registration where the securities are recorded on the issuer’s books in book-entry form in the owner’s name.

Question 16

Selling group

Answer 16

A group of brokers-dealers who help sell the share of an offering to the investors. However, they are under no obligation to buy the bonds.

Question 17

Stock power

Answer 17

Assignment of a security on a sheet of paper detached from the stock certificate authorizing a third party with the power of substitution

Question 18

Secondary market

Answer 18

The market where the previously issued securities are bought and sold by public at large

Question 19

Debt securities

Answer 19

Securities that allow the issuing companies to borrow money from investors. For example, bonds

Question 20

Callable preferred stock

Answer 20

A class of preferred stock that gives the issuing company the right to call in its shares at a prescribed price after a prescribed date.

Question 21

Underwriter

Answer 21

A financial institution that assist the issuer in issuing new securities by purchasing the company’s shares and reselling them to the investors.They write the IPO.

Question 22

Warrant

Answer 22

A financial instrument which gives the holder the right to purchase the securities from the issuing company within a specified time frame at a specified price

Question 23

Rescission

Question 24

Preemptive right

Answer 24

It is a stockholder’s right to maintain her current share of ownership in a company by purchasing a proportionate amount of securities in a rights offering.