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CFP EXAM - Giauque Flashcards > IP - Chapter 9 - Equity Securities* > Flashcards

IP - Chapter 9 - Equity Securities* Flashcards

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1
Q

Represents accounting profit of the company on a per share basis

A

EPS - Earnings per Share

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2
Q

What is the EPS Formula?

A

Net Income - Preferred Dividends / Shares Outstanding

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3
Q

Structure that does not include any dilutive securities.

A

Simple Capital Structure

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4
Q

What is the Payout Ratio?

A

Dividends per share/ Earnings per share

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5
Q

Formula for the retention ratio?

A

Net Income - Dividends / Net Income

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6
Q

When must the buyer own the stock to receive the dividend?

A

1 day before the ex-dividend date

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7
Q

How is dividend yield set?

A

In dollars (dividend % fluctuates with stock price while dollar amount remains the same)

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8
Q

What is most noteworthy of stock dividends?

A

Stock Dividends typically dilute share price (result in more shares outstanding)

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9
Q

What is the result of a 2 for 1 stock split?

A
  • Doubles the number of shares

- Reduces par value by 1/2

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10
Q

What is the result of a 3 for 1 split?

A
  • Triples the number of shares outstanding

- Reduces the PAR value in thirds

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11
Q

Often declared when a company perceives that its stock price is too high for the average investor.

A

Stock Splits

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12
Q

What is a round lot?

A

100 shares

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13
Q

When do companies utilize a reverse split?

A

When a company wants to reduce the number of outstanding shares of company stock.

(Increase share price and reduce the number of shares in an attempt to prevent delisting)

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14
Q

Stocks that trade with a share price below _______ are subject to delisting.

A

$1.00

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15
Q

What is straight or statutory voting?

A
  • 1 vote per share of common stock

- Most common form of voting

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16
Q

What is cumulative voting?

A

1 vote per share times # of seats on board of directors

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17
Q

Sending written authorization to agent to cast vote for shareholder.

A

Proxy Voting

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18
Q

Allowing the owner of a stock or share to maintain his/her ownership percentage.

A

Preemptive Right

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19
Q

What is it called when the courts hold shareholders liable for the actions of a corporation?

A

Piercing the Corporate Veil

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20
Q

Stocks that are generally unaffected by general fluctuations in the economy and the market.

A

Defensive Stocks

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21
Q

What is the corporate dissolution payout order?

A

1) Secured Creditors
2) Unsecured Creditors
3) Preferred Stockholders
4) Common Stockholders

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22
Q

Stocks with high fixed costs that typically have investments in plant and equipment.

A

Cyclical Stocks (Auto, Cement, Airlines)

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23
Q

Companies with sales and market growth at higher rates than the average company.

A

Growth Stocks

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24
Q

Companies that typically grow with GDP?

A

Income Stocks (i.e. Utility Companies)

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25
Q

What are typically companies/stocks that are sensitive to interest rates? (5)

A
  • Insurance Companies
  • Banks
  • Savings and Loans
  • Telephone and Utility Companies
  • Home Construction Companies
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26
Q

High quality companies that investors feel are undervalued by the market

A

Value Stocks

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27
Q

Outstanding shares X Share Price

A

Market Cap

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28
Q

What is mega-cap?

A

Excess of $200 Billion

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29
Q

What is large cap?

A

Market Cap greater than or equal to $10 Billion

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30
Q

What is mid cap range?

A

Greater than or equal to $2 Billion

Less than $10 Billion

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31
Q

What is the small cap market range?

A

Less than $2 Billion

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32
Q

What is the micro cap market cap?

A

Less than $300 MM

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33
Q

What is the Nano Cap market cap?

A

Less than $50MM

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34
Q

What is another name for ‘Treasury Stock?’

A

Company Buyback Shares

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35
Q

These shareholders are issued dividends before common stock holders.

A

Preferred Stock

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36
Q

When a company is required to pay any unpaid preferential dividends from prior years this is called paying _____________________ .

A

Dividends in Arrears

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37
Q

What type of preferred stock has dividends in arrears?

A

Cumulative (Non-Cumulative companies have no dividends in arrears)

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38
Q

What is the order of Dividends paid out?

A 
Preferred Stock Dividends in ARREARS
Preferred Stock Dividend 
Common Stock Dividend 
Preferred Participating Dividends
Common Participating Dividends
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39
Q

Buying Stock direct from a company without the aid of a broker.

A

Dividend Reinvestment Plan

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40
Q

Type of underwriting where the underwriter purchases the entire issue of securities at a specific price and tries to resell it

A

Firm Commitment

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41
Q

Underwriter purchases remaining securities at predetermined price after the IPO to sell.

A

Stand By Underwriting

42
Q

Underwriter sells as much as possible of the issue and the remainder is returned to the company

A

Best Efforts Underwriting

43
Q

Many different firms participate in selling part of an offering

A

Syndicate

44
Q

Companies may sell only to accredited investors

A

Rule 504

45
Q

What is an accredited investor?

A
  • Earned income exceeds $200k ($300k with spouse) in each of the prior 2 years and reasonably expects the same for the current year
  • Has Net Worth of over $1MM either alone or with spouse (excluding value of primary residence)
46
Q

What is rule 506 (b)?

A
  • Unlimited Accredited Investors

- Limited to 35 non-accredited investors (with sufficient business experience)

47
Q

Plans offered by companies that allow investors directly from company as opposed to going through a broker

A

DR|PS - Dividend Reinvestment Plans

48
Q

Certificates held by U.S. banks representing ownership in foreign companies?

A

ADR’s

49
Q

3 facts about ADRs?

A

1) Denominated in US dollars
2) Pay dividends in US dollars
3) No protection from exchange rate risk

50
Q

These types of funds allow investment managers to invest in much less liquid securities without fear that investors will wish to liquidate - forcing manager to sell securities.

A

Close End Funds

51
Q

Example:

Facebook Class ‘A’ Share: 1 vote per share
Facebook Class ‘B’ Share: 10 votes per share

A

Dual Class Structure

52
Q

Investors usually chose these types of investments because they are less correlated with the US market although they are typically more volatile?

A

Foreign/Emerging Markets

53
Q

These offerings are exempt from SEC registration and faster because of lack of registration requirements.

A

Private Placement

54
Q

What is an accredited investor?

A
  • Earned income exceeded $200k (or $300k w/spouse) in each of prior 2 years
  • Has Net worth over $1MM either alone or with spouse (excluding primary residence)
55
Q

For crowd funding rules- If both your annual income and your net worth are equal to or more than this number during any 12-month period, you can invest up to 10% of annual income or net worth, whichever is lesser but not to exceed this number.

A

$107,000

56
Q

For investors and crowdfunding, what are the rules?

A
  • If both Annual Net Income and New Worth individually are greater than or equal to $107,000 then: During any 12 months the individual can invest up to 10% of Annual Income or Net Worth (whichever is lesser)
  • If both Annual Net Income and Net Worth individually are less than $107,000 then: During any 12 months the individual can invest the greater of $2,200 or 5% of the lesser Annual Income or Net Worth
57
Q

Emerging growth companies are defined as __________________ .

A

Issuer with gross revenues under $1B

58
Q

Companies can not do crowd funding directly, they must use either __________ or ______________ .

A

A broker dealer or funding portal

59
Q

What is the job of the secondary market?

A

To provide liquidity to the primary market

60
Q

Where investors buy and sell securities previously issued in the primary market?

A

Secondary Market

61
Q

Also known as the OTC market and where trading is conducted by large institutional investors like mutual funds and pension funds. (Dealers only market)

A

Third Market

62
Q

Trading done without broker dealers where large volumes of securities are traded

A

Fourth Market

63
Q

A type of index that takes the price of the stock without consideration to the companies market cap essentially averaging prices of companies.

A

Price Weighted Index

64
Q

Example of price weighted index?

How is the value determined?

A

DOW

It is the average of the share prices of the companies in the index

65
Q

Index that measures a group of companies by market value (measured by taking total for current market year / market value for base year)

A

Market Cap Weighted Index

66
Q

Examples of market Cap Weighted indexes?

A
  • NASDAQ
  • S&P 500
  • Wilshire 5000 Index
67
Q

To be included in the S&P 500 a company must have a market cap of what?

A

At least $8.2 Billion

68
Q

This index measures all publicly weighted US firms?

A

Wilshire 5000 Index

69
Q

Russel 3000

A

Complete US market

70
Q

Russel 2000

A

Small cap market

71
Q

Russel 1000

A

Large Cap Market

72
Q

Barrons 400

A

400 most fundamentally sound companies for investors

73
Q

What is the MSCI EAFE?

A

Index tracking: Europe, Australia, and Far East

74
Q

What is the ‘new uptick rule?’

A

If stock has dropped more than 10% in a day, short sale can not occur

75
Q

Shorting a stock actually owned by the seller to avoid capital gains?

A

Short against the box

76
Q

What is the typical maintenance margin requirement?

A

35%

77
Q

This type of market order protects from large losses if the security reaches a certain price stop order turns into market order.

A

Stop Loss Order

78
Q

Once stop price is reached stop limit order becomes a limit order to buy or sell.

A

Stop limit order

79
Q

What is a FOK (Fill or Kill) order?

A

Filled in entirety immediately or cancelled

80
Q

What is (AON) all or none order?

A

Must be executed in entirety, will remain active until filled or cancelled

81
Q

What is an IOC (Immediate or cancel) order?

A

Requires full or partial fill immediately or cancelled

82
Q

A holder of a stock receives a declared dividend if the holder is the owner on _______________ .

A

The date of record

83
Q

How is a 25% stock dividend expected to lower the price of a share of stock to 80% of its original value?

A

Old price / New (increased) number of shares outstanding = % of original value

84
Q

Stock dividends do what?

A

Increase the number of shares outstanding

85
Q

What type of voting protects minority shareholders?

A

Cumulative Voting

86
Q

Which market consists of exchanges?

A

The secondary market

87
Q

Long position

A

The purchase of a security

88
Q

Short Position

A

Sale of a security

89
Q

How often do orders expire (unless otherwise specified)?

A

Each day

90
Q

Ways that shareholders can hold their ownership in companies?

A

Physical Certificates, Street Name, or Directly

91
Q

The percentage of earnings that are not paid out as dividends are referred to as the ___________________ .

A

Retention Ratio

92
Q

Share holders are generally protected from personal liability for any ____________________ .

A

Lawsuits against their corporation

93
Q

This ratio equals the percentage of earnings that are paid out as dividends to shareholders.

A

Payout Ratio

94
Q

Represents the accounting profit of a company on a per share basis.

A

EPS

95
Q

Stock that is repurchased from the corporation by the shareholder?

A

Treasury Stock

96
Q

What is the definition of ‘shorting’ stock?

A

Selling borrowed stock and replacing it with a stock purchased in the market at some future date

97
Q

What are the most common type of trading order?

A

Market Order

98
Q

When is the date of record relative to the ex-dividend date?

A

The day after the ex-date

99
Q

What is the ‘margin requirement’ as established by the federal reserve?

A

50%

100
Q

What type of stock are non-voting shares?

A

Preferred Stocks

101
Q

There is a ____ % exclusion from taxation on dividends of preferred stock of one corporation held by another corporation.

If _____ % or more of the company is owned by the company receiving the dividend then up to 100% of the dividend is tax free.

A

70%

20%

102
Q

If a stock is purchased on or after the ex-date who keeps the dividend?

A

Seller

CFP EXAM - Giauque Flashcards (21 decks)

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