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series 7 take 2 > equity securities > Flashcards

equity securities Flashcards

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Series 7 Top-off Exam flashcards
1
Q

4 phases of common stock and definitions

A

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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2
Q

voting methods of common stockholders and description of each

A

statutory- votes split evenly

cumulative- anyway you want (benefits small investor)

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3
Q

dividends are payable as:

A

cash, stock, or property

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4
Q

describe a cash dividend

A

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

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5
Q

describe a stock dividend

A
  • price of stock adjusts down for dividend
  • investor receives additional shares of stock
  • proportionate value remains same
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6
Q

when are cash dividends taxable?

A

taxable when received

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7
Q

when are stock dividends taxable?

A

taxable when shares are sold

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8
Q

short term gains (length)

A

less than 1 year

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9
Q

long term gains (length)

A

more than 1 year

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10
Q

settlement dates for cash and regular way settlements

A

cash- same day

regular way- trade + 3 business days

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11
Q

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

A

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

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12
Q

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

A

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

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13
Q

formula for dividend (current) yield

A

annual dividend / current market value

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14
Q

calculate dividend yield:

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

A

$2 / $42 = 4.76% dividend yield

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15
Q

describe preemptive rights/stock rights

A
  • right to maintain percentage ownership
  • one right per share of stock owned
  • short term (1 month)
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16
Q

exercise price of rights is:

A

below market price of the stock

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17
Q

owner of rights may:

A
  • 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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18
Q

describe warrants

A
  • long term (5 years)
  • exercise price above market price
  • sweeteners
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19
Q

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

A

attached to bond

  • marketability
  • lower interest rate on bonds
20
Q

what are the two equity positions?

A

common and preferred stock

21
Q

describe a reverse stock split adjustment

A
  • price of stock adjusts up for reverse split
  • investor will have fewer shares
  • proportionate value of ownership remains the same
22
Q

describe preferred shares

A
  • fixed par value ($100)

- dividends are fixed stated rate (% of par)

23
Q

describe straight (noncumulative) preferred shares

A

missed dividends are not payable

24
Q

describe cumulative preferred shares

A

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

25
Q

describe callable preferred shares

A

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

26
Q

describe participating preferred shares

A

issuer may pay more than the stated dividend to investor

27
Q

describe adjustable rate preferred shares

A

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

28
Q

right and warrants: which is marginable?

A

rights-non marginable

warrants-marginable

29
Q

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

A

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

30
Q

calculate conversion ratio on a convertible preferred stock:

par=$100 Conversion price= $25

A

$100 (par value) / $25 (conversion price) = 4

4:1 conversion ratio

31
Q

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

A
  • participating preferred stock

- adjustable rate preferred stock

32
Q

an ADR represents:

A

a foreign security in a domestic market

33
Q

ADR shares are held by?

A

bank and the bank issues reciept

34
Q

ADRs are quoted in:

A

US dollars

35
Q

how are ADR dividends declared?

A

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

36
Q

describe bullish and bearish stock positiions

A

bullish- want price to go up

bearish- want price to go down

37
Q

what is the market value of stock affected by?

A

earnings and dividends

38
Q

what is the market value of stock determined by?

A

supply and demand

39
Q

where are REITs traded?

A
  • exchanges

- OTC

40
Q

What do REITs provide?

A

liquidity for real estate investors

41
Q

describe REIT 75%

A

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

42
Q

describe REIT 90%

A

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

43
Q

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

A

$175 per share

44
Q

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:

A

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

45
Q

how are REITs taxed?

A

taxed at the investor’s ordinary income tax rate

46
Q

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?

A

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

series 7 take 2 (17 decks)

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