Unit 1- Equity Securities

Question 1

What are the 4 classifications of common stock?

Answer 1

Authorized
Issued
Outstanding
Treasury
Know each P. 4-5

Question 2

What is the difference between statutory voting and cumulative voting?

Answer 2

Cumulative- stockholders can allocate total votes however they want.
Statutory- One vote per share owned for each item on a ballot. p. 7

Question 3

Does cumulative voting benefit larger shareholders or smaller investors?

Answer 3

Smaller investors. p. 8

Question 4

What are preemptive rights?

Answer 4

The right to purchase newly issued shares to maintain proportionate ownership in a corporation.

Question 5

When securities are offered to common stockholders before the general public, it is known as

Answer 5

antidilution provision

p. 9

Question 6

Stockholders approve what?

What do they not approve?

Answer 6

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.

Question 7

What are the 2 exceptions to voting regarding preferred stock?

Answer 7

1. If a corp defaults on its dividend payments for a certain number of payment dates
2. 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.

Question 8

What are the 5 types of preferred stock?

Answer 8

1. Straight
2. Cumulative
3. Convertible
4. Participating
5. Callable

Question 9

Which type of preferred stock typically has the highest stated rate of dividend?

Answer 9

Callable preferred.

p. 17

Question 10

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?

Answer 10

240
$50
p. 18

Question 11

What is the formula for dividend yield?

What is the formula for current yield?

Answer 11

They are the same.

annual dividend/current market value of stock

Question 12

What is the formula to value a right?

Answer 12

Market price- subscription price/ number or rights to purchase 1 share +1
p. 29

Question 13

Which security typically carries the highest dividend rate?

Answer 13

Callable preferred.

Question 14

Current dividend yield is =

Answer 14

income dividend divided by price.

Question 15

What is safer? Warrants or corporate bonds?

Answer 15

Corporate bonds

Question 16

Rank discount yields from highest to lowest

Answer 16

YTC
YTM
CY
Nominal (coupon)

Question 17

Rank premium yields from highest to lowest

Answer 17

Nominal (coupon)
CY
YTM
YTC

Question 18

In the event of liquidation, the hierarchy of claims on assets is

Answer 18

Unpaid wages
IRS (taxes)
Secured debt (bonds & mortgages)
Unsecured liabilities (debentures) and general creditors
Subordinated debt
Preferred stockholders
Common stockholders