Unit 1 Flashcards
Equity Security
Represents ownership in a company.
Debt Security
Represents a loan to the company or government.
Security
INVESTMENT THAT REPRESENTS EITHER AN OWERSHIP STAKE OR DEBT STAKE
Common Stock (ownership, voting rights, dividends, growth potential
CAPITAL APPRECIATION, INCOME (DIVIDENDS), VOTING RIGHTS, LIMITED LIABILITY, LIQUIDITY, HEDGE AGAINST INFLATION
Preferred Stock (ownership, voting rights, dividends, growth potential)
Own part of company with NO voting rights, pays a fixed dividend, priority over common stock in dividends and during liquidation, GREATER APPRECIATION
WHAT INFLUENCES THE PRICE OF COMMON AND PREFERRED STOCK
COMMON - HEALTH OF COMPANY, PREFERRED - INTEREST RATES
CAPITAL APPRECIATION
AKA CAPITAL GAINS, INCREASE IN THE MARKET PRICE OF SECURITIES
STOCK DIVIDEND (HOW TAXED)
DIVIDEND PAID IN ADDITIONAL SHARES OF COMMON STOCK, NOT TAXED TO SHAREHOLDER
PROPERTY DIVIDEND
PAY IN SHARES IN SUBSIDIARY COMPANY OR IN COMPANY PRODUCTS
WHAT HAPPENS TO PRICE IF COMPANY PAYS IN STOCK DIVIDENDS
THE PRICE OF THE STOCK WILL DROP SO THAT OVERALL VALUE STAYS THE SAME
STOCK SPLIT
ACCOUNTING PROCESS WHERE CORPORATION EXCHANGES NEW SHARES FOR OLD ONES, CHANGING THE NUMBER OF SHARES IN THE MARKETPLACE (CHANGING LARGE BILLS FOR SMALL ONES)
IS STOCK FREELY TRANSFERABLE?
YES, PREMISSION IS NOT REQUIRED OF THE COMPANY, THEY ARE LIQUID
RECORD DATE
DATE BY WHICH AN INVESTOR MUST BE OWNER OF STOCK IN ORDER TO VOTE OR RECEIVED DIVIDENDS
LIMITED LIABILITY
STOCKHOLDERS PERSONAL ASSETS ARE NOT AT RISK (COMMON OR PREFERRED), LIABILITY IS LIMITED TO INVESTEMENT AMOUNT
COMMON STOCK RISKS
MARKET RISK, BUSINESS RISK, LOW PRIORITY AT DISSOLUTION
MARKET RISK
CHANGE THAT A STOCK WILL DECLINE IN PRICE
BUSINESS RISK
DECLINE IN THE COMPANY’S EARNINGS
SENIOR SECURITIES VS RISIDUAL RIGHTS
COMPANYS DEBT AND PREFERRED SHARES, COMMON SHARES
TYPES OF PREFERRED STOCK
STRAIGHT, CUMULATIVE PREFERRED, CALLABLE PREFERRED, CONVERTIBLE PREFERRED, ADJUSTABLE RATE PREFERRED
STRAIGHT (NONCUMULATIVE) PREFERRED STOCK
PLAIN VANILLA, NO SPECIAL FEATURES
CUMULATIVE PREFERRED
ACCRUES PAYMENTS DUE ITS SHAREHOLDERS IN THE EVENT DIVIDENDS ARE REDUCED OR SUSPENDED. IF BOARD SUSPENDS PAYMENTS AND STARTS AGAIN, PAYMENTS ARE PAID IN ARREARS
CALLABLE PREFERRED
COMPANY CAN BUY BACK FROM INVESTORS AT A STATED PRICE AFTER A SPECIFIED DATE. USED TO REPLACE HIGH FIXED DIVIDEND WITH A LOWER ONE. SIMILAR TO REFINANCING A MORTGAGE, DIVIDENDS CEASE ON CALL DATE. SOLD AT PREMIUM OVER PAR
CONVERTIBLE PREFERRED
OWNER CAN EXCHANGE SHARES FOR A FIXED NUMBER OF COMMON STOCK, PRICE FLUCTUATES WITH COMMON STOCK PRICE, GIVE CAPITAL GAIN POTENTIAL AND LOWERS INTEREST RATE RISK.
ADJUSTABLE (FLOATING) RATE PREFERRED
DIVIDEND RATE IS TIED TO RATES OF OTHER INTEREST RATE BENCHMARKS, SUCK AT TBILLS, AND CAN BE ADJUST OFTEN, KEEPING STOCK PRICE STABLE, REDUCING INTEREST RATE RISK
