Equity Securities

Question 1

Authorized Shares

Answer 1

Max # of shares a corporation may issue under terms of its charter

Question 2

Treasury Stock

Answer 2

Shares purchased by corporation or retired. This stock does NOT vote or pay dividends.

Question 3

Outstanding Stock

Answer 3

Issued Stock - Treasury Stock

Question 4

Pre-emptive rights

Answer 4

right to maintain proportionate ownership; “rights ownership” mechanism to get financing quickly

Question 5

Rights

Answer 5

Short term (30-45 days); at issuance they are exercisable BELOW current market price

Question 6

Warrants

Answer 6

Long term (years); at issuance they are exercisable ABOVE current market price, “sweeteners”

Question 7

DERP

Answer 7

Declared, Ex Div, Record date, Payable Date

Question 8

Which date (DERP) is NOT set by the Board of Directors at a company?

Answer 8

Ex Dividend date

Question 9

What is the Ex-Dividend Date?

Answer 9

The date the stock no longer trades with the dividend. On or after this date, investors are not entitled to the dividend payment.

Question 10

What is the Declared Date?

Answer 10

The date the Board announces the next dividend payment

Question 11

What is the Record Date?

Answer 11

Company establishes its list of shareholders who will receive the payout

Question 12

What is the Payable Date?

Answer 12

The date that any declared dividends are due to be paid out to shareholders. Those who purchased the stock before the ex-div date.

Question 13

Two different voting methods

Answer 13

Statutory and Cumulative

Question 14

Using statutory voting, if there are 4 Board chairs to fill and 6 candidates, and I have 500 shares, how would the votes be cast?

Answer 14

4 chairs, 500 each
Candidate A / 500 shares
Candidate B
Candidate C / 500 shares
Candidate D / 500 shares
Candidate E
Candidate F / 500 shares

Question 15

Using cumulative voting, if there are 4 Board chairs to fill and 6 candidates, and I have 500 shares, how would the votes be cast?

Answer 15

4 x 500 = 2000 votes
Candidate A / 1000 shares
Candidate B
Candidate C / 500 shares
Candidate D / 500 shares
Candidate E
Candidate F

Question 16

Which voting method is best for large/majority shareholders?

Answer 16

Statutory

Question 17

Which voting method is best for small shareholders?

Answer 17

Cumulative

Question 18

What is Super voting?

Answer 18

Shares that have more than one vote per share

Question 19

Book value=

Answer 19

theoretical liquidation of a corporation; based on company’s balance sheet (Market price is based on share price)

Question 20

Par Value for preferred stock?

Answer 20

$100

Question 21

Par Value for common stock?

Answer 21

$1.00

Question 22

Par Value for bonds?

Answer 22

$1000

Question 23

Penny stock

Answer 23

Non-NASDAQ stock under $5.00. Suitability statement for new customers and MONTHLY statements sent.

Question 24

How is suitability determined for a penny stock investor?

Answer 24

1. Have traded penny stocks before
2. or has funds held with us for a year

Question 25

ADRs

Answer 25

American Depository Receipts, foreign securities traded in domestic markets that have currency risk (priced in US dollars)

Question 26

Sponsored vs Unsponsored ADRs

Answer 26

Sponsored - issued in cooperation with the foreign company, may trade on US exchange
Unsponsored - issued without involvement of foreign company, trade in OTC market

Question 26

Preferred Stock

Answer 26

Investors interested in fixed income than capital appreciation; receives preferential treatment in liquidation and dividends. No voting rights.

Question 27

What is Cumulative Preferred Stock?

Answer 27

Most preferred stock is cumulative. All preferred dividends that are in arrears must be paid before common stockholders

Question 28

What is Non-Cumulative Preferred Stock?

Answer 28

Dividends in arrears are not paid to stockholders. Only current year’s dividend must be paid before common stock dividends

Question 29

What is Participating Preferred Stock?

Answer 29

May receive a higher dividend if company is doing well & common dividends exceed specified amount.

Question 30

What is Callable Preferred Stock?

Answer 30

Issuing company has the right to repurchase the stock at a specified price in the future. Incentive for the investor is that the call price is higher than the stock’s par value

Question 31

What is Convertible Preferred Stock?

Answer 31

Stock appeals to investors wanting higher secure income but potential for capital appreciation. Trade-off for this is lower priced dividends.

Question 32

What is Variable/Adjustable Rate Preferred Stock?

Answer 32

Dividend adjusts under a predetermined formula and based on benchmark, often T-Bill rates.

Question 33

What is Series K Preferred Stock?

Answer 33

Start with fixed rate and a certain amount of time (5 yrs) switch to floating. No voting rights, Range in par values. Dividends are non-cumulative but qualified for tax purposes

Question 34

When given conversion price, you need to est. the conversion ratio

Answer 34

This is the # of common stock rec’d at the time of conversion

Question 35

Conversion Price =
Conversion Ratio =
Conversion Premium =

Answer 35

C. Price= Par value / Conversion ratio
C. Ratio= Par value/ Conversion price
C. Premium= Bond Price - Conversion Price

Question 36

Tax Implications: Wash sales?

Answer 36

30 day waiting period before buying back a stock to offset gains. If you bought sooner, the loss would be disallowed. (tax harvesting)

Question 37

Tax Implications: Short term vs Long term?

Answer 37

short- pay rate on ordinary income
long - pay long term capital gains rate, hold for greater than 12 months

Question 38

Tax Implications: Inherited vs Gifted Securities

Answer 38

Inherited- they receive a step up on basis
Gifted- giftee assumes donors cost basis