sie chapter 2 important Flashcards
Each share represents ___/___ or __%
1/100 or 1% of ownership
common stockholders have the right to
vote for corporate directors
right to limited access to the corporations books(audits on annual basis)
preemptive rights to maintain their proportional share of ownership in the corporation
proxy
absentee ballot for common stockholders if they miss the meeting
capital gains
an increase in market price of securities
used with Investors with long term investment horizon
dividends are declared by
board of directors
market risk
chance that a stock will decline
decreased or no dividend income
chance that dividends will decrease or just stop
low priority at dissolution
preferred stock holders get paid before common stockholders
order for priority with liquidation
IRS(taxes) and employee(unpaid wages) secured debt unsecured liabilities and general creditors subordinated debt preferred stock common stock
preferred share holders rights
no voting rights nor do they have preemptive rights
benefits of owning preferred stock
dividends paid before common shareholders
if corporation goes bankrupt then this applies over common stockholders also
risk of owning preferred stock
purchasing power risk
interest rate sensitivity
decreased or no dividend
paid before common shareholders but everyone else gets priority over preferred in the event of bankruptcy
straight(non cumulative)
missed dividends are not paid
cumulative
accrues payments in the event that their are missed dividend payments
dividends due cumulative stock accumulate where
on the company’s books until the corporation board of directors decides to pay them
callable preferred
Corporations often issue callable (or redeemable) preferred stock, which a company can buy back from investors at a stated price after a speci ed date.
convertible preferred share price tends to
fluctuate in line with the common.
adjustable rate preferred
adjustable dividend rates
Such dividends are usually tied to the rates of other interest rate benchmarks, such as Treasury bills and money market rates, and can be adjusted as often as quarterly.
for investors looking for income through preferred stock, which would be their least appropriate
adjustable preferred
participating preferred
In addition to fixed dividends, participating preferred stock offers its owners a share of corporate pro ts that remain after all dividends and interest due other securities are paid.
control securities
are those owned by directors, of officers, or persons who own or control 10% or more of the issuer’s voting stock.
if one person holds 5% of the voting stock and their wife owns another 5% of the voting stock, then are they a control person or not
they are
restricted securities
are those acquired through some means other than a registered pub- lic offering.
rule 144
SEC rule requiring that persons who hold control
or restricted securities sell them only in limited quanti- ties, and that all sales of restricted stock by control per- sons must be reported to the SEC by filing a Form 144,
restricted stock(unregistered) held by a nonaffiliated(non insider)=
six month hold
sell freely thereafter
restricted stock(unregistered) held by an affiliate(insider)
6 month hold
volume limits thereafter
control stock(registered) held by an insider
no hold
volume limits apply
American depository receipts (ADR’s)
ADRs are a type of equity security designed to simplify foreign investing for Americans.
An ADR is created when common shares are purchased in the foreign company’s home market.
ADRS will be listed on the _____ but some may trade ____
nyse
OTC over the counter
ADRS trade and settle T+
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ADR taxation
dividends paid to the us investor may be subject to withholding tax by the home country.
Penny stocks
unlisted security trading at less than $5 per share
in regards to penny stocks SEC rules require that customers
before their initial transaction be given a copy of a risk disclosure document
if the account holds penny stocks, broker dealers must provide
a monthly account statement for the customer.
the provisions of the penn stock rules apply only to ____transactions
solicited
established customers are exempt from the _______ but not from the ___
suitability statement requirement
disclosure requirements
established customer is someone who
has held an account with the BD for at least one year (and has made a deposit of funds or securities); or
has made at least three penny stock purchases of different issuers on different days.
term bond
the principal of the whole issue matures at once.
serial bond
schedules portions of the principal to mature at intervals over a period of years until the entire balance has been repaid.
balloon bond
the issuer repays part of the bond’s principal before the final maturity date, as with a serial maturity, but pays off the major portion of the bond at maturity.
coupon represents
interest rate the issuer has agreed to pay the investor
coupon also equals
stated yield or nominal yield
a bond with a 6% coupon is paying $60 in interest per year . par value =
6% × $1,000 par value = $60)
interest is generally paid on a ____basis
semi annual
bond prices impacted by
supply and demand
interest rates
bond prices have what relationship with interest rates
inverse
Though the price of the bond will react to market forces (interest rate sensitivity and general supply and demand), the coupon is
always the same
nominal yield
Coupon, nominal, or stated yield is set at the time of issue. Remember that the coupon is a xed percentage of the bond’s par value.
current yield
measures a bond’s annual coupon payment (interest) relative to its market price
current yield=
annual coupon payment +market price
yield to maturity
reflects the annualized return of the bond if held to maturity.
yield to call
Some bonds are issued with what is known as a call feature. A bond with a call feature may be redeemed before maturity at the issuer’s option.
call feature
generally done when interest rates are
call feature allows an issuer to call in a bond before maturity.
falling
put feature
generally done when interest rates are
The investor can put the back to the issuer before it matures.
rising
convertible feature
benefit is
are issued by corporate issuers, allowing the investor to convert the bond into shares of common stock.
exchange debt instrument for one that gives investor ownership rights
When bonds are issued with features that benefit the issuer, like a call feature, the issuer generally will need to pay a _______ coupon rate of interest to make the bond attractive to new investors.
higher
when bonds are issued with features that benefit the bondholder, like put or conversion features, the issuer can usually pay a slightly____ coupon rate of interest
lower
order from lowest to highest for treasury securities maturities
bills, notes, bonds
t bill are the only security issued at a
they are
discount
without states interest rate
highly liquid
treasury bills issued with maturities
4, 13, 26, 52 weeks
t notes
direct debt obligations with maturities of 2-10 years
treasury bills
direct short term debt obligations of us gov
t bonds
direct debt obligations, pay semiannual interest as a percentage of the stated par value and mature at par value
10-30 years
treasury receipts or strips back in full by the us government
strips
the settlement of agency issued securities occurs t+
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farm credit system (fcs)
a national network of lending institutions that pro- vides agricultural nancing and credit.
government national mortgage association
is a government-owned corporation that supports the Department of Housing and Urban Development.
only agency backed by the full faith and credit of the federal government
government national mortgage association
federal home mortgage corporation
created to promote the development of a nationwide secondary market in mortgages by buying residential mortgages from nancial institutions and packaging them into mortgage-backed securities for sale to investors.
federal national mortgage association
provides mortgage capital.
corporate bonds settle t+
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mortgage bond
a corporation will borrow money backed by real estate and physical assets of the corporation.
equipment trust certificates
Corporations, particularly railroads and other transportation companies, nance the acquisition of capital equipment used in the course of their business. For example, railroads will issue equipment trust certi cates to purchase their rolling stock and locomotives.
collateral trust bonds
Sometimes, a corporation wants to borrow money and has neither real estate (to back a mortgage bond) nor equipment (to back an equipment trust) to use as collateral. Instead, it deposits securities it owns into a trust to serve as collateral for the lenders.
debenture
A debenture is a debt obligation of the corporation backed only by its word and general creditworthiness.
guaranteed bonds
are backed by a company other than the issuing corporation, such as a parent company. The value of the guarantee is only as good as the strength of the company making that guarantee.
guaranteed bonds are secured or unsecured
unsecured
income bonds
are used when a company is reorganizing and coming out of bankruptcy.
if an investor is seeking income, an income bond is or is not a good recommendation
NOT
order of priority for bankruptcy
secured creditors debt instruments
unsecured creditors
subordinated debt
preferred stockholders
common stockholders
municipal securities
are securities issued either by state or local governments or by U.S. territories, authorities, and special districts.
general obligation(go) bonds
issued for capital improvements that benefit the entire community.
go bonds are known as
backed by
full faith and credit issues and are backed by the municipality’s taxing
power.
ad valorem
revenue bonds
used to finance any municipal facility that generates suf cient income.
anticipation notes
are short-term securities that generate funds for a municipality that expects other revenues soon.
529 plans types
prepaid
savings plans
