Securities

Question 1

Characteristics of Common Stock

Answer 1

1. Residual ownership interest
2. Owners have right to vote, inspect books
3. Last in line after creditors, employees, bondholders and preferred shareholders receive dividends / liquidation

Question 2

Characteristics of Preferred Stock

Answer 2

1. No voting rights
2. Pays out dividends; unpaid dividends accumulate
3. Paid before common stock at liquidation / dividend

Question 3

Characteristics of Bonds

Answer 3

1. Promise to pay in future plus mandatory interest
2. No ownership interest
3. Interest payments are tax deductible

Question 4

Restrictions on the issuing of dividends

Answer 4

1. Majority - Can’t be from Legal Capital (money put in at start)
2. Delaware - Can issue dividend up to current year’s earnings, even if it impairs legal capital

Question 5

Watered Stock

Answer 5

Stock that is sold for less than its Par Value (the number on the face of the stock certificate which purports to be the legal capital reserved for the stock)