II: Products that we Offer

Question 1

Unique type of business enterprise in that the law recognizes it as a legal individual.

Answer 1

Corporation

Question 2

Describes what the corporation may or may not do.

Answer 2

Corporate charter

Question 3

The state that issues the charter.

Answer 3

State of incorporation

Question 4

Protection in which shareholders are liable only for the total amounts of their investment.

Answer 4

Limited liability

Question 5

Two types with of stock a corporation can issue shares in.

Answer 5

Common and preferred

Question 6

Investor who buys the corporation’s stock owns a share of the company.

Answer 6

Shareholder

Question 7

Long-term borrowing

Answer 7

Bonds

Question 8

Intermediate-term debt

Answer 8

Notes

Question 9

Short-term debt

Answer 9

Commercial paper

Question 10

Borrowing short-term funds from a bank.

Answer 10

Commercial loan

Question 11

Evidence of ownership

Answer 11

Stock

Question 12

Evidence of debt

Answer 12

Bonds, notes, commercial paper, and commercial loans.

Question 13

Loaned money to the corporation, not invested, and receive interest on their loan.

Answer 13

Bondholders

Question 14

Corporate securities

Answer 14

Common stock, preferred stock, corporate debt, warrants, rights, and commercial paper.

Question 15

Registered ownership denominated in shares which pay income as dividends.

Answer 15

Common and preferred stock

Question 16

Evidence of primary ownership in a corporation

Answer 16

Common stock

Question 17

Form of common stock for which shareholders surrender their right to vote and in return receive a certificate as proof of ownership.

Answer 17

Voting trust certificates (VTCs)

Question 18

Privilege granted by owning share of common stock.

Answer 18

Voting. Typically 1 vote per share.

Question 19

Paid on a per-share basis. Paid annually, semi-annually, or quarterly.

Answer 19

Cash dividends

Question 20

Paid as a percentage of the shares the shareholder owns. Nontaxable distribution.

Answer 20

Stock dividends

Question 21

New issues brought to public market through underwriting.

Answer 21

“Negotiated” form of underwriting

Question 22

Procedure the initial public offering (IPO) of a corporation’s securities takes place.

Answer 22

Underwriting

Question 23

Advises the corporation on market conditions, the corporation’s position in the business environment, and the prospects of a successful issue.

Answer 23

Investment banker

Question 24

Securities that are listed on an exchange.

Answer 24

Listed securities

Question 25

Exchange markets where brokers meet and exchange or trade securities.

Answer 25

Auction markets

Question 26

100 shares

Answer 26

Round lot

Question 27

Less than 100 shares

Answer 27

Odd lot

Question 28

Stock certificates registered to a party.

Answer 28

Registered issue

Question 29

Securities registered in the name of the actual owner.

Answer 29

Registered to the beneficial owner.

Question 30

Securities registered to a nominee or designee of the actual owner.

Answer 30

In nominee name.

Question 31

Where most corporate and municipal securities maintained by broker/dealers and banks are kept.

Answer 31

Depository Trust Company a division of Depository Trust and Clearing Corporation (DTCC). Their nominee name is CEDE.

Question 32

Stocks in good and deliverable form (negotiable) upon receipt.

Answer 32

Street name

Question 33

Maintains names and addresses of the registered holders.

Answer 33

Corporate transfer agent

Question 34

Three primary reasons common stock is an attractive investment

Answer 34

Limited liability, transferability, and liquidity.

Question 35

Stocks not freely tradable given in return for investments by certain types of investors known as venture capitalists or angels.

Answer 35

Private placement

Question 36

Preferred securities usually do not have voting privileges but are “preferred” because:

Answer 36

Current dividends must be paid to preferred shareholders before they are paid to common stockholders.

In case of liquidation, preferred owners receive the distribution of assets before common stock owners.

Question 37

Preferred stock, corporate bonds, municipal bonds, and U.S. government obligations that have a set rate at which interest is paid.

Answer 37

Fixed-income securities

Question 38

Allows the interest rate, or dividend rate in the case of preferred, to be changed periodically.

Answer 38

Adjustable-rate or Adjustable-rate preferred. Allows capital preservation over steady flow of income because the price of the instruments should remain close to the issuing price at all times.

Question 39

Missed dividend is lost forever

Answer 39

Noncumulative dividend

Question 40

All dividends past and current must be paid before the common stockholder can receive any dividends.

Answer 40

Cumulative dividend

Question 41

Preferred stock that permits the corporation to “call in,” or retire, the issue at its option for a predetermined call price.

Answer 41

Callable. Sometimes the corporation might make them noncallable for a period of time.

Question 42

Allows preferred stockholders to convert their shares into common stock.

Answer 42

Convertible

Question 43

How many shares of common stock can be had for each share of preferred.

Answer 43

Conversion rate

Question 44

When market price of a preferred stock share is equal to that of the converted number of common stock shares.

Answer 44

Parity

Question 45

Preferred worth more than the value of the converted common.

Answer 45

Above parity

Question 46

Preferred stock type that earns its set dividend; then the common can earn up to a predetermined amount. Any additional earnings are slated for payout as dividends are shared between the preferred stock type and the common shareholders.

Answer 46

Participating preferred

Question 47

Preferred whose dividend rate is reset periodically. The rate is usually “pegged” to the Treasury bills or Treasury bond yields. Keeps the value of issue close to its original price.

Answer 47

Adjustable-rate preferred. Does not offer the steady stream of income that a fixed-dividend preferred does.

Question 48

As the current interest rate falls, the dividend payments on this type of preferred stock will be adjusted down, but the reverse will be adjusted upwards.

Answer 48

Floating rate preferred and reverse floater.

Question 49

Permits the shareholder to “put” the shares back to the issuer and receive a predetermined price. Some have a fixed life; others are open ended.

Answer 49

Putable preferred

Question 50

Company can mandate that the shareholders surrender their shares back to the company.

Answer 50

Mandatory put preferred shares. Used to disguise call feature.

Question 51

Ceases to exist at a specific time. The preferred shareholder will receive some other issue or cash for the preferred shares. Generally, these instruments become common shares.

Answer 51

Self-liquidating preferred

Question 52

May be callable, convertible, cumulative, or participating, or it might have any combination of these features. Some features benefit the corporation and others benefit the shareholder.

Answer 52

Preferred

Question 53

Type of ownership that is registered (usually) with no income payments and short-term or long-term in duration.

Answer 53

Rights and warrants. Only one rights issue at a time. Several warrant issues may be outstanding.

Question 54

Permit their holders to subscribe to new shares.

Answer 54

Rights and warrants

Question 55

Privilege granted under the corporate charter to its stockholders to purchase new securities in proportion to the number of shares they own at a preset price known as the subscription price which is lower than the stock’s current market price.

Answer 55

Right or subscription right

Question 56

Rights are offered because this clause in the corporate bylaws charter or bylaws requires the corporation to offer new issues of common stock to its current shareholders before offering them to anyone else.

Answer 56

Preemptive rights

Question 57

Divide the difference between the subscription price and the market price by the number of rights required to purchase a new share.

Answer 57

Theoretical value of each right

Question 58

Before the new stock is actually offered to the public, the current outstanding stock is traded with the theoretical value of one right included in it’s market price.

Answer 58

Cum (with) rights

Question 59

After rights are issued the stock and the rights trade separately.

Answer 59

Ex-rights

Question 60

Professional traders who take advantage of price discrepancies in the same or similar issues, watch for price fluctuations, and try to make profit by trading between the rights and new issue.

Answer 60

Arbitrageurs

Question 61

Entitles the holder to acquire common stock or some other instrument at a set price during a specified period of time. The acquisition price initially set is higher than the current market value of the common stock.

Answer 61

Warrants. They are attached to another security at issuance and know together as a unit.

Question 62

Factors that determine warrant value.

Answer 62

Conversion price, time remaining, and value of underlying stock.

Question 63

Referred to as a right or warrant and may represent one or more.

Answer 63

The Certificate