Common Shares Flashcards
Company listed in TSA, trade at 0.65, you bought 300 shares, you buy at ODD lot or board lot?
Odd lot
TSX a. Share price <0.1, a board lot is 1000 shares
b. Share price 0.1-0.995, a board lost is 500
c. Share price >1.0, a board lost is 100
The share priced at $7, paid dividend of 0.95 per share, you expects the divide payment will increase by 3.5% per year, and has a required rate of return of 14%
Dividend Valuation growth Model, The Intrinsic Value is calculated as (expected Dividend payment)(1+ expected growth of dividend)/(required rate of return - expected growth rate of return)
- The intrinsic value of this share is 0.95(1+3.5%)/(14%-3.5%)=9.36 > 7, so higher intrisic value , good to buy
- Purchase 5000 redeemable preferred share with par value $24/share and 6% dividend yield. Till Sep 1 next year, the redemption price of $26.
A Redeemable Preferred Share is preferred share that issuing company can repurchase form the shareholder within specific time period
b. Redemption price , and Premium is any excess of the redemption value over the par value
c. Dividend on an investor’s preferred shares = No of sharepar value dividend yield
d. FLOATING PREFERRED SHARE or VARIABLE rate preferred share, has the dividend payments increase as Interest rates rise
e. In this case, you get 5000246%= 7200 dividend, company can redeem share form now till Sep nest year; and you will get premium 2
f. But your dividiend will not increase as iR increase
- You purchased 500 A share, btw Apr 1 of next year and Mar 31 following year, you has the option of selling the shares back to the company@15, what type of that share?
a. Variable rate preferred share/floating preferred share has DIVIDEND RATE that fluctuate with prevailing IR
b. Convertible Preferred share – you have the right to convert the preferred into another class of shares within a specified time frame—e.g. common share
c. Redeemable preferred share- gives the issuer the right to redeem the share within specific period of time
d. Retractable preferred or a PUT preferred shares give the shareholder the option to sell the preferred share back to the issuing company at a specified price and with specified time
Preferred shares, Convertible – can change to Common shares
- Redeemable –Issuer has the right to buy back or redeem your share with price in certain time
- Retractable - or PUT preferred shares give share holders the option to sell back to issuer
retractable –gives investors or share holders RIGHTS, while Issuers has obligations
Redeemable - Issuers has the RIGHT, Share holders has obligation
Variable rate preferred and Floating Preferred shares has DIVIDEND RATE that fluctuate with PREVAILING Interest rate
- You purchased 1000 Cumulative Preferred shares of a taxable Canadian controlled private corporation (CCPC) at par value of $25. The shares provide an annual fixed dividend of $1.45 per share that was paid from RETAINED earnings from Active business income eligible the small business deduction.
You have effective tax rate on ordinary income of 26%. Province conversion rate for the dividend tax credit on non-eligible dividends of 6.4% The gross up rate for non-eligible dividends is 115% and the federal conversion rate for the dividend tax credit on non-eligible dividends is 9.0301%
What is you after tax yield on the preferred share?
a Non-eligible Dividend is dividend not paid form Corporation’s general rate income pool(grip) and it is not eligible for the enhanced dividend tax credit. – as it is private CCPC
b. A non-eligible dividend paid from Retained Earnings form active business income that was eligible for the small business deductions on share of taxable Canadian corporation.
e. THE effective tax rate on non-eligible dividends = dividend gross up rate * (ETF-(federal +provincial conversion rate))
f. In this case = 115%(26%-9.03%-6.4%)=115%10.569%=12.15%
g. After tax yield==(before tax yield(1-efftctive tax rate for non-eligible dividend))
h. So after tax yield would be (1.45/25)(1-12.15%)
- You purchased 1000 cumulative preferred share @25, a publicly traded taxable Canadian corporation. The share will pay a $1.5 fixed annual eligible dividend. Effective tax rate is 45%. In the province where the conversion rate for the dividend tax credit on eligible dividend is 10%
a
a. Dividend Gross up rate for eligible dividends * (ETR-(Federals conversion rate + Province converted))
b. In this case 138%*(45%-(15.0198%+10%))
c. after tax yield would be 1.5/25(1-effective tax rate for eligible dividend)
Market timing-investment strategy
Buy low and sell high, predicting changes in the stock market, take advantage of anticipated changes.
Financial leverage–investment strategy
Using borrowed money to make larger purchase , hope to increase the profit from transaction
Dollar Cost Averaging
Buying a certain dollar amount of shares at regular time intervals—when stock price rise, you have average price per share that is below marekt price, so can sell with profit
Effective market hypothesis
market price already reflect all available information, so NOsecurity is under valued
The weak form of the EMH- effective market hypothesis
current price of stock is fully reflect all past information. only those with the latest, must up to date information can hope to gain advantage.
in Weak form of EMH, info about recent trasaction are no use to do with near future stock price, as informaiton is already widely known to investors
Semi-Strong form of EMH
publicly available information such as financial statment are no use coz current stock price already reflects all know inof.
Howver, invest can sometimes make priofit if they poseess inside inforamtion that is not available to the general investing public,
Rights vs. Warrants
Rights – are issued to get investors to buy more of a company’s stock
by a certain date. The company usually offers them at a price lower than the market price
. Rights tend to expire after a few weeks.
Warrants – are mostly offered to attract investors when a company issues new stock. They tend to have a longer period before they expire, usually a year or 2.
ESOP- employee share plan
- If non CCPC–canadian controlled PRIVATE company, must claim taxable benefit income in the year exercise the option
- amount is FMV at the time exercise vs. real exercise price
- if company meet deduciton, can claim 50% taxable benefits reduction
When sell the shares,have the adjusted cost base basically is
- real price paid when exercise + taxable benefits+ payment of the option