Individual Securities - Equities

Question 1

Securities

Examples and NON- Examples

Answer 1

Financial asset, an investment of money made with expectation of profit. Example: Stocks, Bonds, Options, Mutual Funds etc…
NOT securities cash, currency, fixed annuities, and life insurance

Question 2

Commodity

Answer 2

is generally a hard asset such as futures, cryptocurrencies, gold, beef, orange juice or oil.

Question 3

Another term for Stocks and Bonds

Answer 3

Stocks = Equities and Bonds = Debt

Question 4

Dividends

Answer 4

Dividends is the distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of directors.

Question 5

Common Stock classified as

Answer 5

Authorized, issued, outstanding and treasury

Question 6

Authorized Stock

Answer 6

Authorized stock refers to the maximum number of shares a publicly-traded company can issue, through preparation of a corporate charter.

Question 7

Authorized Stock Process

Answer 7

A company issues enough of them to raise sufficient capital for expected needs. The company amy sell the remaining authorized shares in ther future

Question 8

Outstanding Stocks

Answer 8

any shares that a company has issued and are in the hands of an investor.

Question 9

Treasury Stock

Answer 9

Stock that a corporation has issued and reacquired.

Question 10

Market Capitalization

Answer 10

Common stocks are classified by the size of the corporation, calculation: OUTSTANDING SHARES multiplied by the CURRENT MARKET VALUE (CMV)

Question 11

Penny Stock

Answer 11

is not listed in the U.S Stock Exchange, trading less then $5 and are considered high speculative. Unsolicited transactions (not recommended by BD or RR) are EXEMPT from the penny stock rules. Solicitated transactions are NONEXEMPT and the rules therefore apply.

Question 12

Cash Dividends

Answer 12

Distributed by check for stock certificates or deposited into a brokerage account. Paid quarterly and taxed the year they are distributed.

Question 13

Stock Dividends

Answer 13

BOD may declare a stock dividends, if the company wishes to reinvest its profits. Company will issue additional shares of its common stock as dividend to its current stockholders instead of cash. Shareholders own more shares.

Question 14

Product Dividends

Answer 14

Very rare, company will pay dividend by sending a sample of the company’s product to shareholders.

Question 15

Name of days for dividend disbursement…

Answer 15

Declaration date, ex-dividend date (ex-date), Record date and payable date.

Question 16

Declaration Date

Answer 16

Company BOD approves a dividend payment, it is then recognized as the date the dividend was declared then the BOD designated the payment date and record date

Question 17

Ex-dividend Date (ex-date)

Answer 17

FINRA and/or Exchange declares an ex-date, it is one business day after the record date. A customer must purchase the stock two business days before the record date to qualify for the dividend.

Question 18

Record Date

Answer 18

stockholders receive the dividend distribution (BOD)

Question 19

Payable Date

Answer 19

The dividend disbursing agent sends dividend checks to all stockholders whose name appears on the books as owners as of the record date. (BOD)

Question 20

Benefits of owning a common stock

Answer 20

Voting rights, opportunity for capital appreciation, current income, limited liability, and freely transferable . Limited access to the corporation’s books and right to receive audited set of financial statements of the company’s performance.

Question 21

Statutory Voting

Answer 21

One vote, Per share. Benefits larger investor.

Example- 100 shares and Three BOD are needed to vote- 100, 100, 100

Question 22

Cumulative Voting

Answer 22

Stockholders allocate their votes in any matter they choose. Benefits the smaller investor!
Example- 100 Shares and Three BOD- 75, 50, 175

Question 23

Risk of owning a stock

Answer 23

Market risk, Decreased or no dividend income, low priority at dissolution (if a company enters bankruptcy, bonds and preferred stocks have priority paid out before all residual funds are paid to common shareholders).

Question 24

Stock Rights

Answer 24

A rights offering allows stockholders to purchase common stock below the current market price. Short term- Are valued separately from the stock and trade in the secondary market for a certain amount of time. Expire 3-4 weeks after issued.

Question 25

A stockholder who received the rights may…

Answer 25

Exercise the rights to buy stock by sending the rights certificates and check to the rights agent, sell the rights for profit, OR let the rights expire and lose their value.

Question 26

Warrants

Answer 26

Long Term- bundled with other securities, allows someone to purchase shares at a price that is above the current market value at the time the warrants were issued.

Question 27

Rule 144

Answer 27

Outlines the sales of restricted or unrestricted securities. Regulates transactions in securities held by controlling or majority shareholders.

Question 28

Restricted Stock

Answer 28

May not be sold until they have been held fully paid for six months before selling shares, restriction must be removed. (Stock will have a stamp on the certificate saying “restricted”, this is called legend)

Question 29

Control Stock

Answer 29

Owned by directors, officers, or persons who own or control 10% or more of the issuers voting stock.

Question 30

Form 144

Answer 30

Control person, affiliate, wants to sell shares they must complete Form 144 in which will determine how many shares they may sell over a 90-day period.

Question 31

Volume limitation under the Rule 144

Answer 31

are the GREATER of 1% of the outstanding shares of the company OR the average of weekly trading over the most recent 4 weeks.

Question 32

American Depositary Receipts (ADRs)

Answer 32

Its an equity security to simplify foreign investing for Americans.

Question 33

ADRs Ease of use

Answer 33

ADRs are not listed on the NYSE or Nasdaq but may be made over the counter, purchases are also made in U.S Dollars. *Helps foreign companies attract U.S Investors

Question 34

ADR Taxation

Answer 34

The amount of tax withheld by the foreign gov is applied as a credit to the investors US tax liability

Question 35

ADR Currency and political risk

Answer 35

ADRs are issued and pay out in US dollars to avoid currency exchange. The company pays out dividends in its home currency and the issuing bank converts it in to dollars for dividend pay out. Currency changes and so does the dividend.

Question 36

Preferred Stocks

Answer 36

Fixed rate of return. It is also identified by its annual dividend payment stated as a percentage of its par value. No voting rights and No preemptive rights.

Question 37

Benefits of owning a preferred stock

Answer 37

Dividend preference over common shareholders. If a corporations goes bankrupt preferred stocks gets priority claim on the assets remaining after creditors have been paid.

Question 38

Risk of owning a preferred stock

Answer 38

Purchasing power risk (fixed income produced will not purchase as much in the future as it does today), Interest rate sensitivity (Interest rate rise, the value of preferred shared declines), Decreased or no dividend income (dividend percentage is fixed but not guaranteed to be paid out), Priority dissolution (Preferred shares are paid behind all creditors)

Question 39

Preferred Stock- Straight (noncumulative)

Answer 39

Missed payments are not paid out to the holders.

Question 40

Preferred Stock- Cumulative

Answer 40

If dividend payments have been missed or suspended, the dividend owed must be paid out to cumulative first.

Question 41

Preferred Stock- Callable

Answer 41

Company can buy back from investors at a pre-set price. (think of refinancing a mortgage), typically done when interest rate falls.

Question 42

Preferred Stock- Convertible

Answer 42

convert to common stock for capital gain potential

Question 43

Preferred Stock- Adjustable Rate

Answer 43

tied to the rates of other interest rates benchmarks, Treasury Bills and money markets. (Least preferred)

Question 44

Preferred Stocks- Participating Preferreds

Answer 44

offers owners a share of corporate profits that remains after all dividend and interest are paid.