- exercise (if you have money available) - sell (if no money available) - allow to expire (not smart. owner would sell or exercise before letting them expire)

- long term (5 years) - exercise price above market price - sweeteners

equity securities Flashcards by chris foster

4 phases of common stock and definitions

authorized- approved by finra
issued- stock bought by investors
treasury stock- stock bought back by issuer
outstanding- issued shares-treasury shares

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voting methods of common stockholders and description of each

statutory- votes split evenly

cumulative- anyway you want (benefits small investor)

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dividends are payable as:

cash, stock, or property

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describe a cash dividend

-price adjusts down by the amount of the dividend on the ex-dividend date

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describe a stock dividend

price of stock adjusts down for dividend
investor receives additional shares of stock
proportionate value remains same

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when are cash dividends taxable?

taxable when received

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when are stock dividends taxable?

taxable when shares are sold

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short term gains (length)

less than 1 year

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long term gains (length)

more than 1 year

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settlement dates for cash and regular way settlements

cash- same day

regular way- trade + 3 business days

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calculate cost basis for even stock splits:
shareholder long 100 shares @ $40
stock splits 2:1

100 shares X $40 = $4,000
$4,000 / 200 shares = $20
after split: 200 shares @ $20

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calculate cost basis for odd stock splits:
shareholder long 100 shares @ $40
stock splits 3:2

100 shares X $40 = $4,000
$4,000 / 150 shares = $26.67
after split: 150 shares @ $26.67

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formula for dividend (current) yield

annual dividend / current market value

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calculate dividend yield:

XYZ stock trading @ $42 pays a $2 annual dividend

$2 / $42 = 4.76% dividend yield

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describe preemptive rights/stock rights

right to maintain percentage ownership
one right per share of stock owned
short term (1 month)

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exercise price of rights is:

below market price of the stock

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owner of rights may:

exercise (if you have money available)
sell (if no money available)
allow to expire (not smart. owner would sell or exercise before letting them expire)

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describe warrants

long term (5 years)
exercise price above market price
sweeteners

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warrants are usually attached to what and for what purpose are they attached?

attached to bond

marketability
lower interest rate on bonds

what are the two equity positions?

common and preferred stock

describe a reverse stock split adjustment

price of stock adjusts up for reverse split
investor will have fewer shares
proportionate value of ownership remains the same

describe preferred shares

fixed par value ($100)

- dividends are fixed stated rate (% of par)

describe straight (noncumulative) preferred shares

missed dividends are not payable

describe cumulative preferred shares

dividends in arrears and current preferred dividends must be paid before common

describe callable preferred shares

issuer may buy back shares after a specified date at a specified price

describe participating preferred shares

issuer may pay more than the stated dividend to investor

describe adjustable rate preferred shares

dividend tied to another rate (ex. T-bill rate)

right and warrants: which is marginable?

rights-non marginable | warrants-marginable

what type of investment would be suitable for investors seeking income?

preferred stock because dividend yield of preferred is generally higher than common shares)

calculate conversion ratio on a convertible preferred stock: | par=$100 Conversion price= $25

$100 (par value) / $25 (conversion price) = 4 | 4:1 conversion ratio

what types of preferred stock can be used as a possible hedge against inflation?

- participating preferred stock | - adjustable rate preferred stock

an ADR represents:

a foreign security in a domestic market

ADR shares are held by?

bank and the bank issues reciept

ADRs are quoted in:

US dollars

how are ADR dividends declared?

declared in foreign currency but paid in US dollars (ADR holder has currency risk)

describe bullish and bearish stock positiions

bullish- want price to go up | bearish- want price to go down

what is the market value of stock affected by?

earnings and dividends

what is the market value of stock determined by?

supply and demand

where are REITs traded?

- exchanges | - OTC

What do REITs provide?

liquidity for real estate investors

describe REIT 75%

-75% of assets must be invested in operating income producing real estate or mortgages

describe REIT 90%

-90% of net operating income must be distributed for REIT to avoid taxation as a trust

when disseminating information about transactions of OTC securities, 1 share equals 1 round lot for stocks trading at or above:

$175 per share

a company with 20 million shares paid $36 million in dividends. if the CMV of the company's shares is $36, the current yield is:

$36 million (dividends paid) / 20 millions shares = $1.80 per share $1.80/$36 = 5% current yield

how are REITs taxed?

taxed at the investor's ordinary income tax rate

XYZ conducts a rights offering to its current shareholders at $50 per share, plus 1 right. If the current market price of XYZ is $70, what is the value of one right before the stock trades ex-rights?

formula: (CMV-subscription price)/number of rights to purchase 1 share + 1 ($70 - $50)/2 = $10