Unit 3: Equities

Question 1

Common Stock

Answer 1

ownership
capital appreciation and dividends
voting rights

Question 2

Penny Stock

Answer 2

traded OTC
less than $5 per share

Question 3

Preferred Stock

Answer 3

ownership
fixed dividend
NO voting rights

Question 4

Rights

Answer 4

short term ability to buy stock at set price
given to avoid dilution

Question 5

Warrants

Answer 5

long term ability to buy stock at fixed price

Question 6

ADRs

Answer 6

domestics security to give international equity exposure
exposed to currency and political risk

Question 7

Offers a higher dividend than the stated rate

Answer 7

Participating Preferred Stock

Question 8

Most closely linked to common stock

Answer 8

Convertible preferred stock

Question 9

EPS

Answer 9

earnings/shares
when preemptive rights are issued, EPS falls (same earnings, more shares)

Question 10

ADR tax treatment

Answer 10

cap gains and divs taxed in same manner as US securities
foreign country can withhold taxes on dividends paid, and then investor receives US credit

Question 11

Conversion Ratio

Answer 11

Par / Conversation Price

Question 12

Investment strongly affected by interest rate changes

Answer 12

Utility stocks: pay high dividends, when bonds pay more utilities are less attractive