Chapter 8 test 2 Flashcards
what are the two types of corporate stock
Common stock and preferred stock
what is common stock
The fundamental ownership claim of equity in a public or private corporation
what are some characteristics of common stock
-right to share in firms profits (through dividends)
- has residual claim on firms assets
-limited liability
-voting rights ( to elect board of directors)
Explain taxation of common stock dividends
dividends are taxed twice - once at firm level and once at personal level.
-could avoid double taxation effect by holding stocks in growth firms.
What is the total return for stock
capital gaines plus dividend yield
Who has lowest priority claim in event of bankruptcy
Common Stockholders
What are senior claims
May be payments owed to creditors such as the firms employees, bond holders, the gov (taxes), and preferred stockholders
What is common stock: limited liability
It implies that the most common stockholders can lose is the money the originally invested in the firm. If the company goes bankrupt you wont have to pay for its debts with your personal money
Typical voting rights…
allow for one vote per share of common stock
what is a proxy vote
a voting ballot sent by a corporation to its stockholders.
- allows stockholders to vote by absentee ballot or authorizes representatives of the stockholders to vote on their behalf
what is preferred stock
a hybrid security that has characteristics of both bonds and common stock
when are dividends generally paid
quarterly
Do preferred stockholders generally have voting rights in the firm
No
what is nonparticipating preferred stock
You get a fixed dividend, no matter how well or poorly the company does
What is participating preferred stock?
If the company makes extra profit, you might get more than your usual dividend
what is cumulative preferred stock?
If the company skips a dividend, it must pay you later before being able to pay common stockholders
What is a noncumulative preferred stock.
if a dividend is skipped its gone forever no back payments
what is a primary stock market
where companies issue new shares to investors for the first time, usually through an Initial Public Offering (IPO)
what happens in firm commitment underwriting
the investment bank guarantees the corporation a price for the newly issued securities
what is a syndicate
a group of investment banks that come together to try to sell and distribute more stocks and bonds to investors
What is an IPO
(initial public offering) is when a company sells its stock to the public for the first time
what is seasoned offerings
sale of additional securities by a company thats already public to raise more capital
what is shelf registration
when a company files one master registration and use it to sell stock over the next two years ( saves time)
-allows a publicly traded company to pre-register securities (like stocks or bonds) with the SEC and sell them later when market conditions are favorable.
what is secondary stock market
Where investors buy and sell stock that have already been issued.
-the company that originally sold the stock is not involved in these transactions
