Quick Quiz - Securities Flashcards
Define Term:
Number of shares that a corporation is permitted to issue
Authorized Stock
Define Term:
Dollar amount assigned to a share by its issuer
Par value
Define Term:
Liquidation value of each share of common stock
Book value
Define Term:
Issues stock - Treasury stock = ??
Outstanding stock
Shareholders do not vote on which of the following?
- Stock splits
- Board Members
- Dividend related matters
- Issuance of additional equity- related securities
Dividend related matters
If ABC stock is quoted at 83.13 how much does the investor pay for 100 shares?
A: $8,313
To determine the price of a round lot, simply multiply by 100 (move the decimal point to places to the right).
How do you calculate a dividends yield?
Annual dividend/Current market price
Always use annual dividend to calculate yield
How do you calculate current yield?
Annual interest/Current market price
What form must a bond be issued in for an investor to receive interest and principal payments by mail?
Bonds must be fully registered or in book-entry form.
How much is 80 basis points?
A. $8
B. $80
C. .8%
D. 8%
A|C: $8 and .8% is correct
100 basis points = $10 = 1% of a bond’s face value.
80 basis points = .8% and is worth $8
(80 x $.10)
In regards to bonds, the difference between the call price and par is known as?
Call premium
Under what economic circumstances do issuers call bonds?
Calls occur when interest rates are declining
Investors who purchase callable bonds faces what types of investment risk?
Call risk:
Risk the bonds will be called and the investor will lose the stream of income from the bond.
Reinvestment risk:
If interest rates are down when the call takes place, what likelihood does investor have of investing the principal received at a comparable rate
Which of the following would an issuer most likely call?
A. High-interest bond, callable at a premium
B. High-interest bond, callable at par
C. Low-interest bond, callable at a premium
D. Low-interest bond, callable at par
B: Issuers want to call bonds that are costly to them at lowest price possible.
A high-interest bond with no call premium is the best combination.
RST bond is convertible to common at $50. If RST bond is currently trading for $1,200 what is the parity price of the common?
Answer: $60
Method 1:
Par value $1,000
Conversion price $ 50
Conversion ratio 20
Parity stock price is found by dividing $1,200 by 20.
Method 2:
Identify new bond price of $1,200 is 20% greater than the original $1,000 price. To be at equivalence, the stock price must also increase by 20%. Add 20% to 50 to solve the problem.
20% of 50 is 10; 10+50 = parity price of $60
