Unit 1- Equity Securities Flashcards
What are the 4 classifications of common stock?
Authorized Issued Outstanding Treasury Know each P. 4-5
What is the difference between statutory voting and cumulative voting?
Cumulative- stockholders can allocate total votes however they want.
Statutory- One vote per share owned for each item on a ballot. p. 7
Does cumulative voting benefit larger shareholders or smaller investors?
Smaller investors. p. 8
What are preemptive rights?
The right to purchase newly issued shares to maintain proportionate ownership in a corporation.
When securities are offered to common stockholders before the general public, it is known as
antidilution provision
p. 9
Stockholders approve what?
What do they not approve?
Stock splits. BOD. Issuance of additional equity related securities- common stock, preferred stock, and convertible securities. Shareholder approval is required to change the stated value of stock (occurs w/ stock split)
They do NOT approve dividend related matters or repurchase of stock.
What are the 2 exceptions to voting regarding preferred stock?
- If a corp defaults on its dividend payments for a certain number of payment dates
- If a corp wishes to issue a new class of preferred stock equal to or senior to the existing preferred stock
Under these conditions shareholders will be given the right to vote.
What are the 5 types of preferred stock?
- Straight
- Cumulative
- Convertible
- Participating
- Callable
Which type of preferred stock typically has the highest stated rate of dividend?
Callable preferred.
p. 17
An investor buys 200 shares of XYZ at $60 per share for a total cost of $12,000. If XYZ were to declare and pay a 20% stock dividend, the investor would have how many shares? What would the cost basis per share be?
240
$50
p. 18
What is the formula for dividend yield?
What is the formula for current yield?
They are the same.
annual dividend/current market value of stock
What is the formula to value a right?
Market price- subscription price/ number or rights to purchase 1 share +1
p. 29
Which security typically carries the highest dividend rate?
Callable preferred.
Current dividend yield is =
income dividend divided by price.
What is safer? Warrants or corporate bonds?
Corporate bonds
Rank discount yields from highest to lowest
YTC
YTM
CY
Nominal (coupon)
Rank premium yields from highest to lowest
Nominal (coupon)
CY
YTM
YTC
In the event of liquidation, the hierarchy of claims on assets is
Unpaid wages IRS (taxes) Secured debt (bonds & mortgages) Unsecured liabilities (debentures) and general creditors Subordinated debt Preferred stockholders Common stockholders
