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Series 7 > Chapter 1 : Equity Securities > Flashcards

Chapter 1 : Equity Securities Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Capital Gain

A

Profit for selling shares for more than purchased

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2
Q

Share Holder Rights

A
  1. Stock Certificate
  2. Inspect Certain Books - Balance Sheet & Income Statement
  3. Dividends Declared by Board
  4. Order of Asset Distributions
  5. Vote
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3
Q

Regulatory / Statutory Voting

A

One Vote Per Share Per Director
Benefits Large Holders

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4
Q

Cumulative Voting

A

One Vote Per Share X Number of Directors
Benefits Minor Holders

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5
Q

Best Hedge Against Inflation

A

Common Stock

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6
Q

Greatest Potential for Long Term Capital Appreciation

A

Common Stock

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7
Q

Authorized Stock

A

Max number of shares allowed to be sold - regulated by corporate charter

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8
Q

Issued Stock

A

Sold to public in the primary distribution

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9
Q

Treasury Stock

A

Stock Re-Purchased by Company
Does not vote / no dividends / not used in EPS

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10
Q

Outstanding Shares

A

Shares issued and held by shareholders
Only shares that vote & receive dividends
Used to calculate earnings per share

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11
Q

Outstanding Stock Calculation

A

Issued Stock - Treasury Stock = Outstanding Stock

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12
Q

Blue Chip Stock

A

Nationally Known Company
Dividend issued in good and bad times
50% dividend payout ratio
Good for capital appreciate and dividend income

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13
Q

Growth Stock

A

High % retained earnings
Pay little to no dividend
High price/earning ratio
High Volatility

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14
Q

Emerging Growth Company

A

Total annual assets less than 1.07 billion
High Risk
High Return
High Failure

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15
Q

Cyclical Stock

A

Rise and fall with economy
Examples : Auto Manufactures / Steel / Appliance Manufacturing / Housing / Paper Company / Tool and Dye Manufacturing

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16
Q

Countercyclical Stock

A

Stock moves in the opposite of the economy
Examples: Gold / Temp Agency / Budget Retailers
“Put the gold on the counter”

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17
Q

Defensive Non/Cyclical Stock

A

Note Defense Industry
Stable and Consistent
Tabacco / Pharma / Utilities / Auto Repair / Food

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18
Q

Utility Stock

A

Pays above average dividends
75% Payout or more
Less capitol appreciation
Highly leveraged = Customer Dependent
Changes in Interest rate changes price

19
Q

American Depository Receipts
(ADR)

A

Traded in USA for Foreign Stock
Held in bearer form by American bank in foreign country
Can represent ratio or fractional ownership
no voting priv
Dividends paid in US dollar
Gains and loss reported on IRS form 1099B
Not issued as callable
“No foreign calling”

20
Q

Dividend Per Share
Calculation

A

Dividend Paid / Outstanding Shares = Dividend Per Share

21
Q

Dividend Payout Ratio
Calculation

A

Dividend Per Share (DPS) / Earnings Per Share (EPS) = Dividend Payout Ratio (%)

22
Q

Retained Earnings would indicate?

A

An increase in retained earnings would result in an increase to shareholder equity on the balance sheet

23
Q

Price to Earnings Ratio
Calculation

A

Market Price / Earnings Per Share(EPS) = Price to Earnings Ratio

24
Q

Average P/E Ratio

A

20-25 Times Earnings
High P/E Higher Future growth potential
Low P/E Lower growth potential or company undervalues
Company with no P/E = loosing money

25
Q

Stock Split Information

A

Par Decreases Proportionally to Split
Shareholders must vote and approve split
Transfer agent maintains accounting

26
Q

2:1 Stock Split
1:2 Reverse Stock Split

A

2:1 Stock split increases # of outstanding shares
1:2 Decreased the # of outstanding shares

27
Q

Stock Split Math Example

A

3:2 Stock Split 100 Shares at $10 per
3/2 x 100/1 = 300/2 = 150
Price Per Share
100 x 10 = 1000
1000/150 = $6.67
150 @ $6.67

28
Q

Derivatives

A

Securities that derive their value from the value of the underlying stock

29
Q

Warrants

A

Want to
No Dividend

Can be perpetual
Frequently with Debentures

30
Q

Rights

A

Have to / Obligated
1 Right per share
Max 90 Days

31
Q

Rights Calculation

A

Outstanding Share / New shares = Number needed to purchase new shares

32
Q

Preferred Stock

A

Equity Security = Ownership
Sensitive to Interest Rates
Fixed income security = Dividend is fixed % of par or fixed dollar amount

No Preemptive Rights / No Voting Priv
Most are issued as callable

33
Q

Dividends

A

Paid On -
Common Stock / Preffered Stock / Mutual Funds
Not Paid On -
Warrants / Bonds

Fully Taxable = Federal State and Local Level

Normally Paid Quarterly

34
Q

Declaration Date

A

Declared by Board

35
Q

Ex-Dividend Date

A

Date stock trades without dividend
Normally day before record date
Determined by exchange listed stock / FINRA

36
Q

Record Date

A

Dividend sent to names on record of this date

37
Q

Payable Date

A

Date the dividend is paid out

38
Q

D ERP

A

Declaration date
Ex- Dividend date
Record date
Payable date

39
Q

Dividend Entitlement

A

Must buy / own the stock at least one business day before the Ex Date

40
Q

Current Yield
Calculation

A

Annual Dividend / Market Price = Current Yield (%)

41
Q

REITS

A

Invest in Income Producing Property
Not Residential Mortgages

42
Q

Types of REITS

A

Equity - Actually Buy Property
Mortgage - Lend money to investors (Highly leveraged)
Hybrid - Both

43
Q

REITS Require

A

Payout at least 90%
At least 75% real estate activities
Can avoid double taxaction if meets requirments (avoids corporation taxation)

44
Q

REITS Not

A

NOT
Direct Participation Programs
NOT
Limited Partnerships

Series 7 (3 decks)

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