Equity Securities Flashcards
Common stock
When you buy common stock you become part owner or a shareholder of the corporation.
Define the limited liability feature in common stock
Investors cannot be held responsible for the unsatisfied claims of the corporation’s creditors.
List the 4 rights of a shareholders in common stock?
- May elect to receive a stock certificate
- Inspect certain corporate books(balance sheet & income statement)
- Receive dividends as they are declared
- Vote for members of the board of directors
What is the order of asset distribution upon liquidation in common stock?
- Taxes
- Secured debt
- Unsecured debt
- Preferred stock
- Common stock
What are the two methods of voting as a shareholder (common stock)
Regular/ statutory-
shareholders receive one vote per share per director
Cumulative/ block voting - shareholders receive one vote per share times the number of directors
What is treasury stock?
When a company repurchases its own outstanding common shares in the open market.
What are outstanding shares?
Shares of a corporation’s stock.
What is a long position?
When an investor buys and owns any security
What is a short position?
When an investor borrows stock from a broker-dealer and then sells the borrowed stock.
Par value?
Is the stated fixed value printed on the face of the stock certificate
Market value?
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.
Regular way settlement
The 2nd business day after the trade date
What is the dividend payout ratio in a blue chip stock?
50% -
They pay half of their net profits in dividends.
What is a cyclical stock? (Economy)
Stock that rise and decline along with the rise and fall in the economy.
List the industries are cyclical stock connected to?
-Auto manufacturers
-Steel
-Appliances
-Housing
-Paper
-Tool and die manufacturers
Which stock has stable and consistent earnings year after year and list the industries it is connected to?
Defensive / non-cyclical stock
- Tobacco companies
- Utilities
- Food co
- Pharmaceutical
- Auto repair co
Which stock is more susceptible to fluctuation due to changes in interest rates?
Utility stock
American depository receipts (ADR)
Are receipts traded in the US for foreign stock.
List the features of ADR
-No voting rights
-Dividends are paid in US dollars
-Are taxed as security and gains & losses
Preemptive rights clause
The clause that requires the corporation to offer existing shareholders rights to issue new shares
Right offering and when does it expire?
Is the right to receive one right for each share of common stock that they hold
Has a maximum of 90 days
List 3 rights of that a Right holders has
-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
Equity options
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.
Preferred stock
Is an equity security. The holders are owners not creditors.
List 2 features of a Preferred Stock
-Is a fixed income security
-no voting privileges
Dividend
Is a portion of a company’s net profit that is paid by the company
What 3 options are dividends paid
-cash
-stock
-property
List 4 funds that a stock is paid a dividend
-Common stock
-Preferred stock
-Mutual fund shares
-American Depositors Receipts
What percentage is the “dividends” taxed at and at what levels?
15% at the federal level.
Dividends paid to investors are fully taxable at the federal, state and local levels.
How often are dividends paid?
Quarterly
Describe the calculation of a Current Yield
Annual dividend divided by market price
