Unit 1 Equity Securities Flashcards
Security
Generally, a negotiable instrument evidencing debt of, or equity in, a common enterprise in which an investment is made with the exception or financial return.
Common Stock
A security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy.
Preferred Stock
An equity security that represents nonvoting ownership in a corporation. Preferred stock is senior to common stock and junior to debt.
Capital Appreciation
A rise in the market price of an asset.
Dividend
A distribution of earnings of a corporation. Dividends may be in the form of cash, stock, or property. All dividends must be declared by the board of directors.
Realized Gain
The amount earned by a taxpayer when an asset is sold for a profit.
Unrealized Gain
The amount by which a security appreciates in value before it is sold, Until it is sold, the investor does not actually possess the proceeds of the sale.
Limited Liability
An investor’s right to limit potential losses to no more than the amount invested. Equity shareholders, such as corporate stockholders and limited partners, have limited liability.
Market Risk
The potential for an investor to experience losses owing to day to day fluctuations in the prices at which securities can be bought and sold.
Senior Security
A security that grants its holder a prior claim to the issuer’s assets over the claims of another security’s holders.
Callable Preferred Stock (Redeemable)
A type of preferred stock issued with a provision allowing the corporation to call in the stock at a certain price and retire it.
Convertible Preferred Stock
An equity security that may be exchanged for common stock at specified prices or rates. Dividends may be cumulative or non cumulative.
Nonqualified Stock Options (NSO)
A type of employee stock option where the gain upon exercise is treated as ordinary income.
