Chapter 8 Flashcards
What is capital Appreciation?
any increase in the value of a company’s assets, including the value of common shares
What are regular and extra dividends
Regular dividends: indicates that barring economic collapse in earning, those dividends will be maintained
Extra dividend: extra payment in addition to regular dividend, assume that payment will not be repeated
Ex-Dividend vs Cum-dividend
ex-dividend: without
cum-dividend: with dividend
What is the relationship between the Ex-dividend date and dividend record date
ex-dividend date is set one day before dividend record date because share trades settle on the second business day after a trade.
What is dollar cost averaging
reducing average cost per unit (e.g. through dividend reinvestment plan which allows for lower commissions)
What are are restricted shares and what are the three categories of restricted shares
Restricted shares are special shares which give the shareholder the right to participate to an unlimited degree in the earnings of a company but do not carry voting rights.
- Non-voting shares, except certain circumstances
- Subordinate voting shares can only vote if another class of shares is outstanding and they carry a greater voting right on a per-share basis
- Restricted voting shares, which carry a right to vote subject to a limit or restriction on percentage/number of shares that may be voted by a person, group, company
What is responsible investmnet
ESG factors (Environmental, social and governance) which can reduce risk and improve long-term financial returns.
What is the motive behind stock splits and reverse stock splits
stock split: Make company share price more affordable
reverse stock splot: Increase share price to a more attractive level or if they are at risk of being delisted due to not meeting minimum price requirements
What are Canadian Depositary receipts
securities designed to give Canadians access to popular U.S and global companies on NYSE and NASDAQ, listed on NEO exchange in Canadian dollars.
What is a key feature of CDR
The CDR ratio which is a method used to increase/decrease number of underlying shares of the CDR based on canada/US exchange rate. Works as a built-in currency hedge.
(Less important thing is that even if a CDR is not very liquid, the underlying shares might be which still creates a narrow bid-ask)
What is Pari passu
When two “different” ranked outstanding preferred share issues are equal as to asset and dividend entitlement. (two classes, same price and dividend)
Describe what the callable feature of preffered shares is.
Almost all preffered shares are callable, thus they can be called/redeemed by iossuer at any time, sometimes they will pay a small premium above issue price.
Describe what the retraction feature of preferred shares is
Retraction: give shareholders the right to force the company to buy back shares on a specific date at a specified price, sometimes multiple dates
Hard/Soft Retraction: Hard means the company must pay redemption value in cash, soft means they can pay in cash or common shares
What are fixed-rate perpetual preferred shares?
They pay a fixed quarterly dividend, generally as an annual percentage of issue price, no stated maturity date. Issues have the right to call shares on established dates. First call date is normally five years after issue date, with a price slightly higher than issue price. Call price declines by set amount each year, so that issue price=call price.
What are floating rate preferred shares
They pay a dividend that floats based on either a percentage of Canadian bank prime rate or yield on 3-month T-bill plus a spread. Pay dividends quarterly or monthly
