Chapter 8 Flashcards
Full voting rights
Class B
Issued by national government agencies and government sponsored corporations other than the Bureau of Treasury.
Government Agency Notes
-a bond secured by a lien on real property
-Market value of real property > Mortgage bonds issued
Mortgage
- Numerous rights of stockholders
a. Right to vote
b. Right to receive dividends
c. Right to share in residual assets
d. Right to transfer their ownership
e. Right to examine the corporate bonds
f. Pre-emptive right
Preferred Share Features
Par value
- It is the face value that appears on the stock certificate
Dividends
It’s stated as a percentage of the par value and are commonly fixed and paid quarterly but are not guaranteed by the issuing firm
Cumulative and Noncumulative dividends
Cumulative dividends are carried forward in arrearage when they are not paid in a particular year
Noncumulative dividends are lost forever when they are not declared in a particular year.
- No definite maturity date
Preferred shares are usually intended to be permanent. However, it sometimes carries special retirement provisions such as a) call feature, (b) sinking fund provision, and (c) conversion option. - Convertible preferred share
Owners have the option to exchange preferred shares with ordinary shares - Voting rights
Preferred share does not ordinarily carry voting right. However, the firm may hold special voting procedures for a specific time period to elect a board of director that represent the preferred shareholder’ interests. - Participating features
This entitles the holder to share in profits beyond the declared dividend. Most preferred share issues are nonparticipating which means their return is limited. - Protective features
- To assure regular payment of preferred share dividends and improve preferred share quality, covenants may
(a)Restrict the amount of common share cash dividends
(b)Specify minimum working-capital levels
(c) Limit the sale of securities senior to preferred share - Call provision
This gives the issuing firm the right to call in the preferred share for redemption. - Maturity
Most preferred shares before a re perpetual, but today, it already has a sinking fund (thus an effective maturity date)
Who are its users and how does it work?
companies, banks, investors
Types of Bonds
Unsecured Long-term Bonds
Secured Long-term Bonds
Interest bearing bank deposits that cannot be withdrawn without penalty before a specified date.
The main risks are:
being locked into low interest rates if rates rise
penalties when withdrawn prior to maturity
Time Deposits (CD)
Capital Market Trading
Primary Market
Secondary Market
An agreement involving the purchase of securities by one party from another with the promise to sell them back at a given date in the future.
Reverse repurchase agreement
Features of Ordinary Equity Shares
Par value/No par value
-It is the stated value attached to a single share at issuance.
-Issue price in excess of par is recorded as Additional paid-in capital, Capital surplus, or Capital in excess of par
Authorized, Issued, and Outstanding
Authorized shares is the maximum number of shares that a corporation may issue without amending its charter
Issued shares is the number of authorized shares that have been sold.
Outstanding shares are those shares held by the public.
- No Maturity
It’s permanent. It’s neither callable nor convertible bit it can be repurchased in the secondary markets through a brokerage firm or tender offer.
Tender offer is a formal offer to purchase shares of corporation. - Voting rights
-Ordinary Share entitles the holder to vote in selection of directors and other matters.
-It can be exercised through proxy voting done under the rule of SEC.
Class A ordinary equity shareholders has limited to no voting rights while Class B has full voting rights. The two common systems of voting are majority voting and cumulative voting - Book Value per Share
It is equal to the ordinary share equity (ordinary share + paid-in capital + retained earnings) divided by the number of shares outstanding - Numerous rights of stockholders
a. Right to vote
b. Right to receive dividends
c. Right to share in residual assets
d. Right to transfer their ownership
e. Right to examine the corporate bonds
f. Pre-emptive right
ordinary equity shareholders has limited to no voting rights
Class A
What is a money market?
Debt instruments that have short term maturities
Allows governments, banks and large institutions to raise money by selling money market securities
Transfer excess funds to those in need of those funds.
two common systems of voting are
majority voting and cumulative voting
Unsecured short-term promissory note issued by a corporation to raise short-term cash, often to finance working capital requirements
90 days to 9 months maturity
Credit rating of the issuing company is important to see the ability of the firm to repay the borrowed funds.
Sold on a discounted basis.
Commercial Paper
Trading Process for Corporate Bonds
explain
Unsecured Long-term Bonds
Debentures
Income Bonds
Subordinated Debentures
Types of Money-Market Instruments
Commercial Paper
Bankers’ Acceptances
Treasury Bills (T-bills)
Government Agency Notes
Local Government Notes
Interbank Loans
Time deposits (CD)
Repurchase Agreements (Repos)
bonds denominated in a currency other than the currency of the market in which they are offered
Eurobonds
-investment bank can purchase the bonds through COMPETITIVE BIDDING against other investment banks or by directly negotiating with the issued.
Competitive Sale
carried forward in arrearage when they are not paid in a particular year
Cumulative dividends
what is capital market
a financial market in which longer-term debt (original maturity of one year or greater) and equity instruments are traded.
includes BONDS, STOCKS, MORTGAGES
Highly liquid securities
Maturity of one year or less
Issued by the Bureau of Treasury (BTr)
Default risk free
Little interest rate risk
Sold on a discounted basis
To cover current government budget deficits and to refinance maturing government debt
Treasury Bills (T-bills)
number of authorized shares that have been sold.
Issued shares i
