Series 65 Exam Prep, Over 1000 Questions And Answers, Verified Solution

Series 65 Exam Prep, Over 1000 Questions And Answers, Verified Solution Name the equity securities Preferred and Common stock What is a security? Instrument that is readily exchanged for value between parties and involves risk Why are Whole and Term life insurance sand IRAs/retirement plans NOT securities? Not readily exchanged Why are confirmations and prospectus not securities? Do not have value How does one become owner of a company? buy shares in that company What distinguishes stocks from options and bonds? Stocks are perpetual. mo maturity date (bonds), and no strike price and date (options) When can a company issue preferred stock? After it issues common stock. what is authorized stock? Number of shares that a company is permitted to sell. It is arbitrarily decided at incorporation, but can change with a shareholder vote. What is issued stock? Shares to be sold to the public, less than the number of authorized shares. It can be sold as a lumpsum or in a series of sales. If shares are bought back by the company, are they still considered issued? Yes, because they have been in the public's hands. More specifically, they are called treasury stock since they have been repurchased. Why would a company sell additional authorized shares? Pay dividend, Expand operations, Exchange common shares for convertible preferred or convertible bond, Employee stock plans (PEEE) What are outstanding shares? Shares that are STILL in the public's hands. Mocha Co. has 10M shares authorized. 5M were sold to the public. How many shares issued? How many outstanding? 5M (issued and outstanding) What is treasury stock? shares repurchased by the Co. no voting rights or dividends. Why would Co. buy back shares? Control of Co., Employee stock plan funding, Earnings per share increase, Merger and acquisition payment (CEEM) Latte Co. has 10M shares authorized. 5M was sold to the public. Latte repurchased 3M. How many are outstanding? How many issued? 5M issued; 3M Treasury; 2M outstanding How is common stock market value determined? Supply and demand. Price may not have a relationship to the actual worth of the company. Co. book value formula Tangible assets- liabilities Book value per share formula TA-L/# of outstanding shares Common stock par value Only accountants need to know to determine how much to credit to the balance sheet at the initial sale of shares Preemptive right Right to maintain proportional interest in the company When is preemptive right exercised? During rights offering - 45 days to decide whether to exercise (buy shares at discount or subscription price), or sell to other investor, or expire (if 45 days are up and stock is trading below subscription price) Murdock has 10K shares, or 10% interest, in Mocha Co. that issued 100K shares (10k/100k x 100=10%). Mocha issued an additional 100K. How much should Mocha offer Murdock? 100K new shares x 10%=10K offered during rights offering. Rights offering - Exercised Investor buys shares at rights offering at subscription price Rights offering- sold Shares sold to another investor when the original investor did not want the shares Rights offering - expired No investor wants the stock and/or 45 days have elapsed. During rights offering, what happens to the stock? Trades with the rights attached, or cum rights. When rights offering expires, or on the ex date, what happens to the stock? trades w/o the right, or ex-rights and adjusts down in value by the right that is no longer attached. How many rights are required to purchase an additional share if the stock trades at $50/share and the subscription price is $48/share? 50-48=$2=2 rights. So you need $48 plus 2 rights to buy one additional share. 2 methods of voting avail to shareholders statutory and cumulative. How many votes is each shareholder entitled to? 1 share = 1 vote Statutory voting number of shares must be divided evenly among your candidates of choice or go all in if it is only one candidate that you like cumulative voting shareholder can go all in for their favorite candidate, or split unevenly or evenly among their favorites Trumpster owns 200 shares of Bull co. There are two spots available on the board. Four candidates are gunning for the spots. Trumpster likes two candidates, and since he owns so many shares, he is entitled to statutory voting. How many votes can he place for his two favorite candidates? 200 x 2 spots = 400, must split evenly between the two candidates. Gingrich owns 200 shares of Red, White, and Blue co. There are three spots avail on the board. Four candidates are gunning for the spots. Gingrich likes only one candidate. How many votes can he place for his favorite candidate using cumulative voting? 200x3 spots=600 votes so 600 go to his favorite candidate What is the stockholder's liability? Just the amount invested in the company's stock. Riboshu Co. bankrupted. During the liquidation process, what are the common shareholders entitled to? their proportional interest in whatever is left (residual remains) after creditors and preferred shareholders got what is owed them. Current or dividend yield Current yield is a general term and can apply to bonds and stocks. With stocks, it is called the dividend yield. Annual income/current price of the security x 100= #% Flat Ab Co. pays $0.50 quarterly dividend. Stock is trading at $20/share. What is its current yield? 0.50 QUARTERLY x 4= $2.00 ANNUAL/$20=1/10x100=10% Trade Date when your order actually executed. For market orders, it is immediately. Limit orders, when the terms on the order are met. Settlement date when you become owner of the stock. For common and preferred shares as well as corp and municipal bonds, it is two days after trade date (T+2). For options and government bonds, it is 1 day after trade date (T+1) Why some people like preferred shares? Steady income via semi-annual dividend payments. Par value for preferred stock? Bonds? $100; $1000 How much will Bidu receive in ANNUAL income from investing 100 shares of TWT 9% preferred? $100 x 0.09 = $9 x 100 shares = $900 annual income Even though a company MUST issue common shares before preferred shares, the opposite applies to dividends. dividends on preferred shares MUST be paid before dividends on common shares. Even though preferred shares are non-voting, when can a shareholder vote? If you own cumulative preferred shares, you can voice your input if your preferred stock has not paid you dividends yet. Similar to bonds, preferred shares have inverse relationship with interest rates.