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SIE EXAM > unit 1 > Flashcards

unit 1 Flashcards

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SIE Exam flashcards
1
Q

security

A

an intangible financial asset that may be bought, sold, or gifted between persons

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2
Q

2 ways a security can be represented

A

1: paper certificate
2: held in an electronic record

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3
Q

commodity

A

hard asset; gold, beef, orange juice, oil

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4
Q

futures

A

an active market in a derivative investment in commodities

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5
Q

The Howey Test tell us that a security is:

A

1: an investment of money made into
2: a common enterprise
3: with the expectation of profit
4: through the efforts of a third party

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6
Q

examples of securities:

A 
stocks
bonds, notes and debentures 
options
mutual funds
jumbo CDs
depository receipts
units in an investment
variable life and variable annuities
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7
Q

cryptocurrencies are considered a

A

commodity; no third-party management

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8
Q

2 basic securities:

A

stocks (equities) and bonds (debt)

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9
Q

most common type of debt:

A

bonds

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10
Q

capital appreciation

A

individual investors benefiting from an increase in the price of shares

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11
Q

dividends

A

the share of earnings through a distribution of profits

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12
Q

equities represent

A

ownership in the company

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13
Q

a company _____ stock to raise ______.

A

issues (sells); capital (money)

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14
Q

stockholders or shareholders

A

investors who buy stock in the company; company’s owners

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15
Q

each share of stock entitles its owner to a portion of the company’s:

A

earnings and a vote in major management decisions

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16
Q

board of directors

A

elected by stockholders to handle day-to-day details of operation

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17
Q

common stock can be classified as:

A

authorized
issued
outstanding
treasury

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18
Q

authorized stock

A

raising money by selling an authorized number of shares decided on by the founders of the business; most of the time a company does not issue all authorized shares

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19
Q

if a company wants to issue more shares than authorized,

A

the charter must be amended through stockholder vote

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20
Q

issued stock

A

authorized stock that has been sold to investors

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21
Q

when a company issues (sells) fewer shares than the authorized number,

A

it normally reserves the unissued shares for future needs

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22
Q

authorized stock that wasn’t issued is reserved for future needs including

A

1: raising new capital for expansion
2: paying stock dividends
3: exchanging common stock for outstanding convertible bonds or preferred stock

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23
Q

authorized but unissued stock does not carry the rights of issued shares and is

A

not considered in determining a company’s total capitalization

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24
Q

authorized but unissued stock is similar to

A

blank checks in your checkbook

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25
Q

outstanding stock

A

any shares that a company has issued and are in the hands of investors

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26
Q

treasury stock

A

stock a corporation has issued and subsequently reacquired

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27
Q

treasury stock

A

stock a corporation has issued and subsequently reacquired

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28
Q

treasury stock does not carry the rights of

A

outstanding common shares; voting rights and the right to receive dividends

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29
Q

analyst are only concerned with what type of stock?

A

outstanding shares

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30
Q

common stocks are often classified by the

A

size of the corporation

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31
Q

the measurement to classify the size of a corporation

A

market cpitalization; market cap

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32
Q

determine market cap by

A

multiplying the number of outstanding shares by the current market value (CMV) of a share; (outstanding x CMV)

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33
Q

CMV stands for

A

current market value

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34
Q

large-cap stocks

A

the largest companies; rapidly growing tech companies or big, long-established firms

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35
Q

large-cap companies that have a long history of steady dividend payments are often called

A

blue-chip stocks

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36
Q

mid-cap stocks

A

a company that is too large to be a small cap, but not large enough to be large cap; reflect characteristics of both

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37
Q

small-cap stocks

A

smallest stocks large enough to be listed on national exchanges; oriented towards growth and produce very little dividends

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38
Q

penny stocks

A

unlisted security trading at less than $5 per share

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39
Q

unlisted stocks

A

not listed on the U.S. stock exchange; penny stocks

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40
Q

equity securities defined as a penny stock are considered

A

highly speculative

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41
Q

SEC rules require customers to receive _______ before their initial transaction in a penny stock

A

risk disclosure document; must be returned dated and signed by customer

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42
Q

regardless of the activity in the account, if the account holds penny stocks, the broker-dealer must provide

A

monthly account statements to the customer

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43
Q

the broker-dealers monthly statement to penny stock holders must include

A

market value and the number of shares for each penny stock held, as well as the issuers name

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44
Q

the broker dealer must determine what when cold-calling a customer?

A

suitability

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45
Q

how is suitability determined when a broker cold-calls a customer?

A

information about the buyer’s financial situation and objectives

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46
Q

the customer must sign a ____ before any initial penny stock trades may be placed

A

suitability statement

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47
Q

when a broker dealer cold calls a customer, they must disclose:

A

1: the name of the penny stock
2: the number of shares to be purchased
3: a current quotation
4: the amount of commission that the firm and the representative receive

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48
Q

an established penny-stock customer is someone who:

A

1: has held an account with the BD for at least 1 year (and has made a deposit of funds or securities)
2: has made at least 3 penny stock purchases of different issuers on different days

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49
Q

established penny-stock owners are exempt from:

A

suitability requirement

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50
Q

dividends are

A

distribution of a company’s profits to its shareholders

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51
Q

who are entitled to dividends?

A

investors who buy stock or mutual funds

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52
Q

when are dividends distributed to investors

A

if and when the BOD votes

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53
Q

who are automatically sent any dividends to which their shares entitle them?

A

shareholders

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54
Q

dividends may be paid in 3 ways:

A

1: cash dividends
2: stock dividends
3: product dividends

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55
Q

cash dividends

A

normally distributed by check if the investor holds the certificate, are auto deposited to a brokerage account

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56
Q

street name

A

shares held in a brokerage account in the firm’s name to facilitate payment and delivery

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57
Q

when declared, cash dividends are typically paid

A

quarterly

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58
Q

when declared, taxes for cash dividends are

A

paid in the year they are distributed

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59
Q

stock dividends

A

the company issues additional shares of its common stock as a dividend to its current stockholders instead of cash

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60
Q

when are stock dividends typical?

A

growth companies that invest their cash resources in research and development

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61
Q

when a company BOD wishes to reinvest its profits for business purposes rather than pay cash the declare

A

stock dividends

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62
Q

the stock dividend itself is

A

not taxable but the adjusted cost per share will impact the tax consequences when shares are sold

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63
Q

adjusted cost per share

A

new cost basis

64
Q

product dividends

A

some companies will pay a dividend by sending a sample of the company’s product to shareholders

65
Q

most rare form of dividend

A

product dividend

66
Q

cash dividends may be taxed as

A

1: qualified
2: non-qualified

67
Q

non-qualified cash dividend

A

taxed at the investor’s ordinary income tax rate

68
Q

the maximum tax rate on qualified dividends is

A

specified by IRS tax code and will depend on the investor’s income tax bracket

69
Q

the higher the investor’s income tax bracket

A

the higher the tax on qualified dividends will be, up to the specified maximum

70
Q

the maximum tax rate on qualified cash dividends will

A

always be lower than the investor’s ordinary income tax rate

71
Q

dividend disbursing process:

A

1: declaration date
2: ex-dividend date (ex-date)
3: record date
4: payable date

72
Q

declaration date

A

when a company’s BOD approves a dividend payment; designates payment date and the record date

73
Q

ex-dividend date (ex date)

A

one day before the record date; an investor must purchase the stock 2 business days before the record date to qualify for the dividend

74
Q

if the stock is purchased on or after the ex-date

A

the new owner has purchased the stock “ex” without the dividend and is therefore not entitled to receive it

75
Q

record date

A

the stockholders of record (those who own stock) on the record date receive the dividend distribution

76
Q

payable date

A

dividend disbursing agent sends dividend checks to all stockholders whose name appear on the books as owners as of the record date

77
Q

investors are taxed for the year the dividend is paid based on

A

the payable date

78
Q

D.E.R.P.

A

declaration date
ex date
record date
payable date

79
Q

common shareholders benefits

A

voting rights
opportunity for capital appreciation
current income
limited liability

80
Q

proxy

A

an absentee ballot

81
Q

shareholders have the right to

A

sell or gift their common stock

82
Q

without this feature there would be no stock market

A

freely transferrable common stock

83
Q

a shareholder can cast how many votes?

A

1 per share of stock owned

84
Q

two types of stockholder voting:

A

1: statutory voting
2: cumulative voting

85
Q

statutory voting

A

allows stockholders to cast 1 vote per share owned for each item on a ballot; need majority to be elected

86
Q

cumulative voting:

A

allows stockholders to allocate their votes in any manner they choose

87
Q

cumulative voting benefits who?

A

the smaller investor

88
Q

statutory voting benefits who?

A

large shareholders

89
Q

the word preempt means

A

to put oneself in front of another

90
Q

common stockholders have the right to

A
  • examine BOD meeting minutes
  • examine the list of shareholders
  • receive an audited set of financial statements of the company’s performance
91
Q

growth

A

capital gains; an increase in the market price of securities

92
Q

stock rights are known as

A

preemptive rights

93
Q

stock rights

A

allow existing common stockholders to maintain their proportionate ownership shares in a company by buying newly issued shares before the company- offers them to the general public

94
Q

rights offering allows

A

stockholders to purchase common stock below the current market price

95
Q

the number of rights required to purchase one share of the new issue depends on what?

A

the number of outstanding shares and the number of new shares offered

96
Q

a stockholder who receives rights may

A

1: exercise the rights to buy stock by sending the rights certificates and a check for the required amount to the rights agent
2: sell the rights and profit from their market value
3: let the rights expire and lose their value (not likely)

97
Q

rights certificates are

A

negotiable securities

98
Q

warrant

A

a certificate granting its owner the right to purchase securities from the issuer at a specified price

99
Q

what is a long-term instrument that gives the investor the option of buying shares at a later date at the specified (exercise)?

A

a warrant

100
Q

while the exercise price of a warrant is higher than the current market value when the warrants are issued,

A

it is hoped that the exercise price will be below current market value when the warrants are eventually exercised

101
Q

what offerings are usually bundled as units with bonds or preferred stock to make them appear more attractive to investors?

A

warrants

102
Q

short term, given to existing shareholders, allows one purchase shares below current market value

A

rights

103
Q

long term, bundled with other securities, allows someone to purchase shares at a price that is above current market value at the time they were issued?

A

warrants

104
Q

rule 144 applies to

A

1: restricted stock
2: control stock

105
Q

restricted stock (securities)

A

stock acquired through some means other than a registered public offering

106
Q

a security purchased in a private placement is a

A

restricted security

107
Q

restricted securities may not be sold until

A

they have been held fully paid for six months

108
Q

when ____ is issued, they will have a restrictive legend on the certificate warning about the holding period restriction

A

restricted stock

109
Q

restricted stock is also referred to as

A

legended, or legended certs

110
Q

before restricted stock are sold,

A

the issuer must release (remove) the restriction; allowing the shares to trade freely

111
Q

the phrase “the sale effectively registers the stock” refers to

A

buyers of stock being sold subject to rule 144 when issued are not subject to any restrictions if they choose to resell

112
Q

control stock

A

stock owned by directors, officers, or persons who own or control 10% or more of the issuer’s voting stock

113
Q

if there is a 10% or more interest held by immediate family members, then all those family members owning voting stock are

A

control persons

114
Q

control person are also referred to as

A

an affiliate

115
Q

if a control person wants to sell shares, that person must

A

complete a form 144

116
Q

form 144

A

is used to determine the number of shares the control person may sell over a 90-day period

117
Q

volume limitations under rule 144 are the greater of

A

1: 1% of the outstanding shares of the company
2: the average weekly trading volume over the most recent four weeks

118
Q

control persons are ____ subject to volume limitations

A

always

119
Q

warrants are

A

long term and normally attached to a fixed-income offer

120
Q

non-affiliates have no volume limitations in the sale of

A

registered stock

121
Q

the volume limitation for non-affiliates ends after 6 months

A

when the shares are restricted

122
Q

american depository receipts (ADR)

A

a type of equity security designed to simplify foreign investing for americans

123
Q

an ADR is created when

A

common shares are purchased in the foreign company’s home market

124
Q

each ADR may represent

A

1 or more shares of the foreign company’s shares held on deposit

125
Q

any trading profits from the ADR would only be taxable

A

in the united states

126
Q

ADR taxation

A

tax owed to the home country of the underlying foreign stock issuer

127
Q

how is ADR taxation collected?

A

the amount of tax withheld by the foreign government is applied as a credit against the investor’s U.S. tax liability

128
Q

ADRs are issued and paid in

A

US dollars

129
Q

When is ADR considered risky?

A

currency and political risk of the ADR isuer

130
Q

preferred stock

A

an equity security that represents a class of ownership in the issuing corporation

131
Q

the rate of return on a preferred stock is

A

fixed rather than subject to variation; similar to a debt security

132
Q

a preferred stocks annual dividend represents

A

its fixed rate of return

133
Q

preferred stock is a key attraction for

A

income-oriented investors

134
Q

always assumer preferred par value is

A

$100 unless stated otherwise

135
Q

preferred stock shareholders generally have

A

no voting rights and no preemptive rights

136
Q

all corporations issue common stock but not all corporations issue

A

preferred stock

137
Q

preferred stock do not have the same growth potential as

A

common stock

138
Q

benefits of owning preferred stock

A

1: dividend preference
2: priority at dissolution over common stock

139
Q

risks of owning preferred stock

A

1: purchasing power risk
2: interest rate sensitivity
3: decreased or no dividend income
4: priority at dissolution

140
Q

types of preferred stock

A

1: straight
2: cumulative

141
Q

straight preferred stock

A

no special features beyond the stated dividend payment

142
Q

cumulative preferred stock

A

accrues payments due its shareholders in the event dividends are reduced or suspended

143
Q

dividends due cumulative preferred stock accumulate

A

on the company’s books until the corporation’s BOD decides to pay them

144
Q

when a company’s BOD decide to resume dividend payments, cumulative preferred stockholders

A

receive current dividends plus the total accumulated dividends before any dividends are paid to common shareholders

145
Q

callable preferred stock

A

a company can buy back from the investors at a stated price after a specified date

146
Q

callable preferred stock is similar to

A

refinancing a mortgage

147
Q

convertible preferred

A

the owner can exchange the shares for a fixed number of shares of the issuing corporation’s common stock

148
Q

adjustable-rate preferred

A

issued with adjustable dividend rate; adjusts to current interest rates

149
Q

adjustable preferred stocks can be adjusted

A

as often as quarterly

150
Q

investors looking for income through preferred stocks would not choose

A

adjustable-rate preferred stock

151
Q

participating preferred stock

A

offers a share of corporate profits that remain after all dividend and interest due to other securities are paid

152
Q

the percentage of which participating preferred stock investors receive is

A

noted on the stock certificate

153
Q

ADRs are issued by a depository bank and the bank is the

A

registered owner of the shares

154
Q

Depository banks are not required to

A

pass voting rights through to the ADR holders

155
Q

preferred stock owners have ______ voting rights

A

zero

SIE EXAM (2 decks)

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