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SIE Exam 2024 > Chapter 5: Equity Securities > Flashcards

Chapter 5: Equity Securities Flashcards

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SIE Exam flashcards
1
Q

Equity Security

A

Represent an ownership interest in a trust or company

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2
Q

Common Stock

A

-Shares that represent ownership in the company
-Have a claim to any residual cash
-Limited liability

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3
Q

Preferred Stock

A

-Higher claim on earnings and assets to a company
-Limited or no voting rights
-Received dividends before common shareholders
-Dividends are often fixed

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4
Q

Corporation

A

Business organization that operates as a legal entity separate from its owners and which the law treats as an individual

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5
Q

Debt Financing

A

Raising funds through borrowing

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6
Q

Advantage of Debt Financing

A

Shareholders’ control is not affected and retain full control of the company

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7
Q

Disadvantage of Debt Financing

A

Company has to pay fixed charges even if it is not doing well financially

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8
Q

Equity Financing

A

Getting funds by selling ownership in the company in the form of shares

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9
Q

Stock Issue

A

Raising funds by offering securities

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10
Q

Share Buyback

A

Company repurchases own shares

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11
Q

Rights of Common Shareholders

A

-Right to Inspect Corporate Documents
-Evidence of Ownership
-Transfer of Ownership
-Participation in Corporate Earning

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12
Q

Right to Inspect Corporate Documents

A

Can investigate admin and financial records but have to ask for governing documents or financial statements

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13
Q

Evidence of Ownership

A

Stock certificates show ownership; includes purchase date, number of shares owned, ID, and signatures

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14
Q

Transfer of Ownership

A

Stockholders can sell their shares without any restriction from the company unless subject to restrictions

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15
Q

Participation of Corporate Earning

A

Share in gains if company produces a profit

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16
Q

Statutory Voting

A

Allows investors to vote based on how many shares they have

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17
Q

Cumulative Voting

A

Number of shares is multiplied by number of director seats available

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18
Q

Restricted Securities

A

Acquired privately in an unregistered manner from the issuing company or affiliate

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19
Q

Lock-Up Agreement

A

Ensures that company insiders do not sell their shares for a set period of time

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20
Q

How long do lock-up agreements typically last?

A

90-180 days

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21
Q

Investment Letter

A

Establishes that the securities are being bought for a minimum duration of time and are not for resale

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22
Q

Restricted Stock

A

Shares issued to the employees as part of their pay but cannot be transferred until certain terms and conditions are met

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23
Q

What are the two types of restricted stock?

A

Units and Awards

24
Q

Restricted Stock Units

A

Grants a given number of shares to an employee in the future

25
Q

Restricted Stock Awards

A

Grant of company’s stock in which recipient’s rights in stock are restricted until shares are vested or lapse in restrictions

26
Q

Controlled Stock

A

Shares owned by major shareholders of a publicly held company

27
Q

Who typically owns controlled stocks?

A

Affiliates

28
Q

Rule 144: Restricted Stock

A

Holding period of 6 months; Afterwards, no sale restrictions

29
Q

Rule 144: Controlled Stock

A

Holding period of 6 months; Afterwards, sale limitations still apply

30
Q

American Depository Receipt (ADR)

A

Certificate that represents a specific number of shares of a foreign company’s stock

31
Q

Sponsored ADR

A

Legal association is established between ADR and foreign company, where foreign company assumes expenses related to issuing the security

32
Q

Unsponsored ADR

A

Issued by a depository bank without the involvement or participation of a foreign company

33
Q

Blue Chip Stock

A

Shares of large companies with well-known brands and successful track records

34
Q

Growth Stock

A

Shares of companies that are expected to grow at a significant rate, typically above average

35
Q

Income Stock

A

Regular and steady income, mostly dividends over a period of time, with low risk exposure

36
Q

Defensive Stock

A

Reliable, stable earnings and consistent returns, even in economic crisis

37
Q

Cyclical Stock

A

Price is affected by the economy

38
Q

Noncumulative Preferred Stock

A

Dividend does not accumulate, paid at a set rate

39
Q

Cumulative Preferred Stock

A

Accumulate dividends each year until paid

40
Q

Callable Preferred Stock

A

Issuer has the right to redeem stock at a preset price after a set period of time

41
Q

Participating Preferred Stock

A

Preferred shareholders must share additional dividends with common shareholders

42
Q

Convertible Preferred Stock

A

Gives the option to convert to a specified number of common stock shares

43
Q

Preemptive Rights

A

Allow existing shareholders to purchase additional shares before the company offers them to other investors during a new round of financing

44
Q

Shareholders’ Right to Maintain Percentage Ownership

A

Allows stockholders to maintain their percentage of ownership of the shares

45
Q

Percentage Ownership

A

Number of shares divided by outstanding shares

46
Q

Discount

A

Amount that share price is lower than the net asset value

47
Q

Short-Term

A

Involves stocks that are traded on a frequent basis

48
Q

How long is the holding period for short-term trading stocks?

A

< 1 year

49
Q

Tradable

A

Shares that are fully paid and duly issued

50
Q

Warrant

A

Derivative issued by a company that gives buyers the right to purchase a company’s stock at a certain price before an expiration date

51
Q

Put Warrant

A

Allows holders to sell the underlying security at a fixed price

52
Q

Call Warrant

A

Allows investors to purchase the intrinsic asset or share of common stock at a fixed price

53
Q

FINRA 2261

A

Directs the disclosure of financial information to customers

54
Q

Under FINRA 2261, what are members required to do?

A

Make important information available to customers and other members in the members’ most recent balance sheet

55
Q

SEC Rule 10b-18

A

Reduces liability for companies when they repurchase common stock

SIE Exam 2024 (20 decks)

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