Margin

Question 1

What is in the Margin Agreement

Answer 1

Hypothetication Agreement - MUST be signed by customer
Consent to Loan agreement (optional)
Credit Agreement - Interest rate for loan aount

Question 2

What securities are able to be margined

Answer 2

Listed stocks and bonds on any exchange
EFTs
NASDAQ stocks and bonds
30 Days Post issue - IPOs, Investment Company Shares (mutuals/uits) because they have a pro

Question 3

What securities can not be margined

Answer 3

Options (wasting asset)

other OTC not FRB (benny stock)

Question 4

Reg T requires what % of deposit for

Answer 4

50%

Question 5

What is your SMA

Answer 5

A line of credit that doesn’t go away
Provides 2X buying power
Can withdraw 1x cash

Question 6

What is the MV @ Min Maintenance for a LMV

Answer 6

DR/.75 = MM

Question 7

What is the MV @ MM for a SMA

Answer 7

CR/1.3 = MM

Question 8

What is the combined Equity calc

Answer 8

(LMV-DR) + (CR-SMV) = Combined Equity

Question 9

What is the min deposit for LMV

Answer 9

2k or 100% of premium

Question 10

What is the min deposit for SMV

Answer 10

2k min

Question 11

Common Stock

Answer 11

Capital appreciation
Issued - Treasury Stock = Oustanding stock
Decrease in outstanding stockm, increases value

Question 12

What is treasury stock

Answer 12

When the company repurchases stock, makes less stock available and increases the value

Question 13

For common stock, when does ownership occur

Answer 13

on the Settlement date = transfer of ownership

T+2

Question 14

Payment is due on CS according to the FRB when

Answer 14

T+4, gives you two additional days post transfer of ownership

Question 15

What rights do CS holders have

Answer 15

Voting rights - BOD, issuance of additional securities, stock splits, mergers, business reorg
DO NOT HAVE RiGHTS over - dividends, officers (voted on by BOD)
Right to dividend if declared (cash - ordinary income tax) or Stock (cap gain/loss using adj cb)

Question 16

What is the ex-dividend date

Answer 16

the too late date (1 business day prior to record date)

Question 17

What happens when a split occurs

Answer 17

the shares increase and the cost decreases

2: 1 100% stock dividend
5: 4 - 1 addtl share for every 4 you own
3: 2 50 % stock dividend

Question 18

What happens with a reverse split

Answer 18

1:5 increase the price and decrease outstanding shares

This happens when a company is in danger of being delisted

Question 19

What are pre-emptive rights

Answer 19

the right to not have shares diluted
company must offer additional shares to existing shareholders first
VERY short term

Question 20

How can I determine what I can buy additionial shares for, as an existing shareholder

Answer 20

CMV-Subscription price / # rights - 1

Question 21

What is a warrant

Answer 21

the right to buy stock @ specific time and price in the future
longer term
offered above CMV
only issued at intrinsic value
offered through employee stock purchase plans or attached to new bond to make more marketable

Question 22

What is preferred stock

Answer 22

a stock that pays a fixed stated dividend
RISK: interest rate - when rates rise, the market price decreases, makes less attractive
objective - income
acts like a bond

Question 23

What is beta

Answer 23

the volatility of the overall market (1.0)
if beta is up 1.2, then it is riskier than the mkt
systematic risk

Question 24

what is alpha

Answer 24

it is the measured business risk

Question 25

what types of pereferred stock are there

Answer 25

stright - no bells and whistles
cumulative - make up dividends in arrears
participating - provide a stated rate and additional dividends if declared
convertible - ability to convert into CS @ specified price - use for fixed income until market increases (least int rate sensitive)