Debt and Equity

Question 1

TERP

Answer 1

The market price that a stock will theoretically have following a new rights issue

Question 2

Cum Rights

Answer 2

All existing shareholders have the right to subscribe for new shares in a rights issue, that are being traded with rights attached

Question 3

Ex Rights

Answer 3

On the first day of dealings in the newly issued shares, the rights no longer exist and the old shares are now traded at ex rights (without rights attached).

Question 4

Participating preference shares

Answer 4

Gives the holder fixed dividends plus extra earnings based on conditions (a bit like ordinary shares)

Question 5

Convertible preference shares

Answer 5

Can be exchanged for ordinary shares at some future date. You get a fixed income stream but also get the chance to benefit from capital gains if you choose to convert.

Question 6

Redeemable preference shares

Answer 6

Holders are repaid their capital (usually at par) at a pre-determined future date.

Question 7

Offer for sale

Answer 7

Shares are offered to the public (underwritten) by an issuing house. Requires a national newspaper advert.

Question 8

Public Issue

Answer 8

Shares are offered directly to the public and not necessarily underwritten. Mainly for very large household names.

Question 9

Placing

Answer 9

A company issues shares to a select group of institutional investors.

Question 10

Rights issue

Answer 10

An invitation to existing shareholders to purchase additional shares in proportion to the size of their shareholding, giving them pre-emption rights.

Question 11

Introduction

Answer 11

Public already holds at least 20% of the shares. No new shares are issued by the public can buy them on the market.

Question 12

Underwriting

Answer 12

When a financial institution will buy any shares that have not been sold by the company for a fixed fee