Stock market Flashcards
Characteristics of common stock
- Dividends –> not obligated, some firms prefer to reinvest the money in the company. It reduces dividends, but raises capital gain from selling the stock
- Residual claim –> stockholders are the last ones to be paid, making it more risky, BUT they have
- Voting rights –> indirect control over the company, voting on board members as well as in important decisions, such as M&A
- limited liability –> their loss has a limit equal to their investment.
What are the two types of board member voting by stockholders?
you have votes that are * % of shares
- Cumulative –> all runners are voted on at the same time, the holder can split their vote or not. Here you can stack up your votes
- Straight voting –> here you cannot stack them up.
What are the characteristics of preferred stocks?
They are considered hybrid securities because they have characteristics of both bonds (fixed payments) as well as of stock
What are the classes of preferred stocks?
- Participating –> dividends vary according to the company’s earnings (they get promised D + “residue”)
- Non=participating –> dividend is always fixed
- Cumulative –> if a dividend payment is missed, whenever possible, the investor will get the missed ones + the next
- non-cumulative –> missed dividends are never paid
In which strategy are syndicate of banks used?
Best effort
What is the leading house?
Lead bank who negotiates the IPO/seasonal offer with the issuing firm
What are preemptive rights?
When doing a new issue, the company has to offer to current holders the possibility to buy new shares so they can maintain the same % they used to have before offering it to the public. They sell it at a lower price than mkt price and avoid issuing costs.
What are the steps of a stock issue registration? (no explanation)
- Registration statement (info on the issuer)
- Red herring prospectus
- Waiting period
- Registration
- Quiet period
What is the red herring prospectus?
Preliminary version of the prospectus distributed to potential buyers + road show
What is the quiet period?
The period between the registration and stock selling. During it, companies cannot issue any information to buyers
What is a shelf registration?
Firms can submit one registration for multiple issues up to 2 years, making it faster to place them into the market.
What is the difference between a bearer and a dealer?
A bearer trades in behalf of themselves and a dealer on behalf of a client
What is a market order?
The clients specifies the quantity they want and the broker will try to find the best price available
What is a limit order?
The client specifies a limit price and the transaction occurs if the market price <= limit price
How is the Dow computed?
It is an average of 30 companies, chosen by specialists. It is a price weighted average Price/divisor
