Unit 1 and 2

Question 1

The long position you buy to _ and sell to _
The short position you buy to _ and sell to _

Answer 1

The long position you buy to open and sell to close
The short position you buy to close and sell to open

Question 2

What is a market order?

Answer 2

An order to buy or sell. Filled at best available price immediately. Take precedence over limit order.

Question 3

What is a limit order?

Answer 3

An order to buy or sell. Sets a maximum purchase price if buying or a minimum selling price if selling. If limit is not hit the order is not fulfilled.

Question 4

What is a stop order?

Answer 4

An order to buy or sell. These do not become live in marketplace until stock trades at or through a specified price. Once price is hit this acts as a market order.

Question 5

What is a stop limit order?

Answer 5

Order to buy or sell. A combination of a stop order and limit order.

Question 6

What is a stop limit order?

Answer 6

Order to buy or sell.

Question 7

What is a tombstone advertisement. What is found in it?

Answer 7

An ad that is allowed to be run before effective date (during cooling off period). Information includes: name of issuer, type of security, number of shares, POP or POP range, and names of underwriting members.

Question 8

You cannot open what with the Depository Trust Company (DTC)?

Answer 8

traditional saving or checking accounts

Question 9

How many days for a final prospectus for an IPO, APO, listed APO, and nonlisted IPO

Answer 9

IPO = 25
APO = 40
listed APO = 0
nonlisted IPO = 90

Question 10

Responsibilities of the transfer agent

Answer 10

• issued in correct owners name
  -canceling old and issuing new certificates
  -maintaining records of ownership
  -handling problems of list, stolen, destroyed certificates

Question 11

What Act requires companies to provide a prospectus to investors?

Answer 11

The Securities Act of 1933

Question 12

What are the third and fourth markets?

Answer 12

Third = Exhange-listed securities in the OTC
Fourth = composed of electronic communication networks used by institutional investors.

Question 13

The capital market is also known as the

Answer 13

Primary market

Question 14

Tier 1 securities can offer up to how much?

Answer 14

20 million in a 12 month period. No more than 6 million can be sold on behalf of selling shareholders

Question 15

Tier 2 securities can offer up to how much?

Answer 15

75 million in a 12 month period. 22.5 million can be sold on behalf of existing selling shareholders.

Question 16

Designated Market Maker

Answer 16

acts as the dealer on the floor. They maintain an inventory of the security and guarantees liquidity.

Question 17

Broker Dealer (BD)

Answer 17

Also called an investment banker.

Question 18

Underwriter

Answer 18

works with issuer to bring its securities to the market.

Question 19

Agent

Question 19

What is best effort underwriting?

Answer 19

Where underwriter is simply acting as an agent and has no commitment to purchase shares themselves. There are 2 types. All-or-none(AON) and Mini-max.

Question 20

What is firm commitment underwriting?

Answer 20

The underwriter buys securities from issuer and resells them to the public at a higher price (the POP).

Question 21

a cash settlement trade is settled in how many days?

Answer 21

The same day

Question 22

What does an inside quote consist of?

Answer 22

The highest bid and the lowest ask

Question 23

Regular-way transactions

Question 24

Preliminary prospectus aka red herring

Answer 24

a prospecting tool used to gauge interest in a security

Question 25

long sale vs. short sale

Answer 25

long sales are

Question 26

What is an equity security?

Answer 26

These represent ownership in the company and are also referred to as stocks. Owners of stock are called shareholders / stakeholders.

Question 27

Authorized stock

Answer 27

stock authorized to be issued by a company. Usually just enough to meet fund raising needs.

Question 28

Issued stock

Answer 28

Authorized stock that has been sold to investors. Stocks can be authorized yet go unsold which provides them with fewer rights.

Question 29

Outstanding stock

Answer 29

All shares that have been issued and are in the hands of investors. If the stock is bought or donated back to company it is no longer outstanding,

Question 30

Treasury stock

Answer 30

Stock that a corporation has reacquired. Has fewer rights. can be reabsorbed or reissued or held.

Question 31

How is market cap determined?

Answer 31

Outstanding shares multiplied by CMV

Question 32

What are the stock cap sizes.
What is a penny stock

Answer 32

Large,mid, and small cap stocks
Penny stock = unlisted on the NYSE and sells for less than $5 per share. These are highly speculative and buying receive a risk disclosure document before initial transaction.

Question 33

Penny stock cold calling rules

Answer 33

BD must disclose

Question 34

Cash dividends

Answer 34

Paid by check or by direct deposit quarterly. taxed yearly

Question 35

Stock dividends

Answer 35

When a company chooses to issue additional stocks to shareholders instead of cash so that profits are reinvested in the company.

Question 36

Product dividend

Answer 36

Rare. Company will send sample of product to shareholder as dividend.

Question 37

What are the 4 important dividend disbursement dates?

Answer 37

Declaration date - the date the dividend was declared by BOD
Ex-dividend date - 1 business day before dividend record date. to receive dividend stock must be purchased before this date.
Record date - When stockholders receive dividend distribution
Payable date - when checks are made to stakeholders on dividend list.

Question 38

How can a common stockholder vote without being in attendance?

Answer 38

submit an absentee ballet aka a proxy

Question 39

Statutory voting vs. cumulative voting

Answer 39

statutory = one vote per share. BOD needs majority
cumulative = stockholders can allocate their votes in any manner the choose. aka split votes up.

Question 40

freely transferable shares

Answer 40

stocks can be freely transferred without corporate permission.

Question 41

Preemptive rights

Answer 41

stockholders have the right to maintain their proportionate share of ownership if additional shares are created.

Question 42

Common stock financial benefits and risks.

Answer 42

Benefits = growth, income, limited liability
Risk = value risk, decreased or no dividend income, low priority at dissolution (bankruptcy)

Question 43

What is preferred stock

Answer 43

an equity security that has a fixed rate of return rather than a subjective one.

Question 44

Preffered stock benefits and risks

Answer 44

Benefits = dividend preference and priority at dissolution.
Risk = purchasing power (from inflation), interest rate sensitivity (increased IR lowers value), decreased or no dividend income, and priority at dissolution.

Question 45

Types of preferred stock are

Answer 45

straight, cumulative, callable preferred, convertible preferred, adjustable- rate preferred, and participating preferred.

Question 46

American Depository Receipts (ADR)

Answer 46

an equity security designed to simplify foreign investing for U.S. investors. Easy to use, ADR taxation, and currency/political risk.

Question 47

Rule 144

Answer 47

from securities act of 1933. applies to restricted stock. These have an issuer release on them that must be removed before traded.

Question 48

Control stock

Answer 48

Stock of those who own or control 10% or more of the issuers voting stock. when sold form 144 must be filed out. 1% volume limit.

Question 49

tender offer

Answer 49

buying a security directly from owner aka not on secondary market.