Chapter 1 Study Questions Flashcards
A firm must apply to become one of these
Member
Compensated by a commission in securities transactions.
Broker
Compensated by a markup/markdown in securities transactions.
Dealer
Someone controlling or controlled by a member firm.
Associated Person (AP)
ABC company has authorized 1 million shares of common stock. It issued 800,000 shares 1 yr ago. It then purchased 200,000 shares for its treasury. How many shares of ABC stock are outstanding?
issued stock - treasury stock = outstanding stock
800,000 - 200,000 = 600,000
ABC Company has 600,000 shares of common stock outstanding.
Number of shares that a corporation is permitted to issue
Authorized Stock
Dollar amount assigned to a security by its issuer
Par Value
Hypothetical net worth of each share of common stock
Book Value
Equity securities in the hands of the public
Outstanding Stock
What represents ownership (equity) in a company?
Common Stock and Preferred Stock
Stockholders’ preemptive rights include the right to
maintain proportionate ownership interest in the corporation.
At the annual meeting of ABC Corporation, 5 directors are to be elected. Under a cumulative voting system, an investor with 100 shares of ABC would have a total of?
500 votes to be cast in any way the investor chooses for 5 directors. Cumulative voting benefits the small investor.
What is the basic formula for a balance sheet?
Assets = Liabilities + Net worth
Name two disadvantages of investment in common stock compared with fixed income securities (like bonds)?
No assurance of return, and lower priority of income payment.
Which type of stock has the highest stated rate of dividend (all other factors being equal)?
- Participating
- Straight
- Cumulative
- Callable
“Callable”, because when the stock is called, dividend payments are no longer made. To compensate for that possibility, the issuer must pay a higher dividend.
Which of the following types of preferred stock is most influenced by the price of an issuer’s common stock?
- Participating
- Straight
- Convertible
- Callable
Convertible.
Name 2 types of preferred stock might pay a dividend higher than that printed on the certificate?
Cumulative preferred and Participating preferred.
In what way does preferred stock differ from common stock as an investment?
Greater sensitivity to interest rate fluctuation.
What is the priority of dividend payments made by a corporation of the following?
- Common dividend
- Dividends in arrears paid to cumulative shares.
- Stated dividends paid to all preferred shares.
- Dividends in arrears paid to cumulative shares.
- Stated dividends paid to all preferred shares.
- Common dividend.
Calculate dividend yield (current yield) for the following:
“RST stock has a market value of $50. Total dividends paid during the yr were $5.
$5 / $50 = 10
10% = Dividend Yield
ADR’s (American Depository Receipts) are used to facilitate…
the domestic trading of foreign securities.
The owner of an ADR (American Depository Receipt) is likely to receive…
Both dividends and capital gains or losses.
Describe a “call”?
The buyer has the right to buy, the seller of the call has the obligation to sell.
Describe a “put”?
The buyer has the right to sell, the seller of the put has the obligation to buy.
What is “bullish”?
When an investor buys shares “long” the stock (act of buying), and expects the stock to increase in price. Buy low, sell high.
What is “bearish”?
When an investor sells shares he has borrowed, with the intent of buying them back at a lower price in the future for return to the owner. This is also known as a “short” sale. Sell high, buy low.
