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Section 2 > Equity Securities > Flashcards

Equity Securities Flashcards

1
Q

Common stock

A

When you buy common stock you become part owner or a shareholder of the corporation.

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2
Q

Define the limited liability feature in common stock

A

Investors cannot be held responsible for the unsatisfied claims of the corporation’s creditors.

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3
Q

List the 4 rights of a shareholders in common stock?

A
  1. May elect to receive a stock certificate
  2. Inspect certain corporate books(balance sheet & income statement)
  3. Receive dividends as they are declared
  4. Vote for members of the board of directors
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4
Q

What is the order of asset distribution upon liquidation in common stock?

A
  1. Taxes
  2. Secured debt
  3. Unsecured debt
  4. Preferred stock
  5. Common stock
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5
Q

What are the two methods of voting as a shareholder (common stock)

A

Regular/ statutory-
shareholders receive one vote per share per director

Cumulative/ block voting - shareholders receive one vote per share times the number of directors

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6
Q

What is treasury stock?

A

When a company repurchases its own outstanding common shares in the open market.

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7
Q

What are outstanding shares?

A

Shares of a corporation’s stock.

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8
Q

What is a long position?

A

When an investor buys and owns any security

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9
Q

What is a short position?

A

When an investor borrows stock from a broker-dealer and then sells the borrowed stock.

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10
Q

Par value?

A

Is the stated fixed value printed on the face of the stock certificate

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11
Q

Market value?

A

Is the price at which the stock can be sold in the open market. It is determined by supply and demand, it fluctuates in value daily.

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12
Q

Regular way settlement

A

The 2nd business day after the trade date

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13
Q

What is the dividend payout ratio in a blue chip stock?

A

50% -
They pay half of their net profits in dividends.

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14
Q

What is a cyclical stock? (Economy)

A

Stock that rise and decline along with the rise and fall in the economy.

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15
Q

List the industries are cyclical stock connected to?

A

-Auto manufacturers
-Steel
-Appliances
-Housing
-Paper
-Tool and die manufacturers

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16
Q

Which stock has stable and consistent earnings year after year and list the industries it is connected to?

A

Defensive / non-cyclical stock

  1. Tobacco companies
  2. Utilities
  3. Food co
  4. Pharmaceutical
  5. Auto repair co
17
Q

Which stock is more susceptible to fluctuation due to changes in interest rates?

A

Utility stock

18
Q

American depository receipts (ADR)

A

Are receipts traded in the US for foreign stock.

19
Q

List the features of ADR

A

-No voting rights
-Dividends are paid in US dollars
-Are taxed as security and gains & losses

20
Q

Preemptive rights clause

A

The clause that requires the corporation to offer existing shareholders rights to issue new shares

21
Q

Right offering and when does it expire?

A

Is the right to receive one right for each share of common stock that they hold

Has a maximum of 90 days

22
Q

List 3 rights of that a Right holders has

A

-Use the rights to purchase additional shares through a transfer agent
-Sell their rights or let the rights expire
-Gift the rights to another investor

Shareholders may not redeem the rights for cash

23
Q

Equity options

A

An option is a contract that entitles the buyer to either buy or sell shares of underlying stock for a specific time for a set price.

24
Q

Preferred stock

A

Is an equity security. The holders are owners not creditors.

25
Q

List 2 features of a Preferred Stock

A

-Is a fixed income security
-no voting privileges

26
Q

Dividend

A

Is a portion of a company’s net profit that is paid by the company

27
Q

What 3 options are dividends paid

A

-cash
-stock
-property

28
Q

List 4 funds that a stock is paid a dividend

A

-Common stock
-Preferred stock
-Mutual fund shares
-American Depositors Receipts

29
Q

What percentage is the “dividends” taxed at and at what levels?

A

15% at the federal level.

Dividends paid to investors are fully taxable at the federal, state and local levels.

30
Q

How often are dividends paid?

A

Quarterly

31
Q

Describe the calculation of a Current Yield

A

Annual dividend divided by market price

Section 2 (11 decks)

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