Chapter 1, Day 2 Flashcards
What does it mean for a stock to trade “cum rights”?
A stock trades “cum rights” between the rights offering declaration date and the ex-date, meaning the right to purchase additional shares is still attached to the stock.
What is the formula to calculate the value of a right when the stock is trading cum rights?
MarketPrice−SubscriptionPrice / NumberofRightsRequired +1
How is the value of a right calculated when the stock is trading ex-rights?
Valueofoneright(ex) = MarketPrice−SubscriptionPrice / NumberofRightsRequired
What is a standby underwriter in a rights offering?
A standby underwriter agrees to purchase any unsold shares after rights holders exercise their rights.
What voting rights do common stockholders have?
Common stockholders vote on the board of directors, issuance of new securities, mergers, stock splits, and major corporate policy changes.
What is the difference between statutory and cumulative voting?
Statutory Voting: Votes are split evenly per candidate.
Cumulative Voting: All votes can be cast for one or multiple candidates, favoring small investors.
What is meant by “limited liability” in stock ownership?
Stockholders can only lose the amount they’ve invested; they aren’t personally liable for company debts.
What makes common stock “freely transferable”?
Common stock can be sold without issuer approval, typically through a broker on secondary markets.
What is the role of the transfer agent?
The transfer agent records changes in ownership, issues new certificates, and locates lost or stolen certificates.
What does the registrar do?
The registrar audits the transfer agent and ensures no unauthorized issuance of shares.
What is a CUSIP number?
A unique identifier for securities issued by the Committee on Uniform Securities Identification Procedures; appears on stock/bond certificates and confirmations.
What rights do stockholders have regarding company records?
Stockholders may inspect books and records and receive financial reports, but not all confidential data.
What is the residual claim on assets in bankruptcy?
Common stockholders are paid last after all creditors and other claimants in liquidation.
What is the current yield (dividend yield) formula?
CurrentYield = AnnualDividendIncome / Current Market Price
What are the key dates in a stock transaction and their meanings?
Trade Date: The day the order is placed.
Settlement Date (T+1): Ownership officially changes.
Payment Date (T+3): Funds must be in the account for the purchase.
