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Unit 1.2

Investment Company Products/Variable Contracts

QuestionAnswer
Equity Securities Common Stock / Preferred Stock
Common Stock Issued by company as its primary means of raising capital. Investors who buy _____ buy a share of ownership in the company's net worth. Whatever a business owns (assets) minus its creditors (liabilities) belongs to the business owners (stockholders).
Authorized Stock When a corporation receives the "O-K" from the state to issue, or sell, a specific number of shares of stock, this is known as
Issued Stock Once authorized, this can be distributed to investors.
Treasury Stock Stock a corporation has issued and subsequently repurchased from the public. Does not carry the rights of outstanding common shares, such as voting rights and the rights to receive dividends.
Outstanding Stock Any shares that a company has issued but has not repurchased -- that is, investor owned stock.
Market Price (CMV - Current Market Value) The most familiar measure of a stock's value. It is the price investors must pay to buy the stock. This is influenced by a company's business prospects and the consequent effect on supply and demand.
Book Value How much a common stockholder could expect to receive for each share if the corporation were liquidated. Computed by taking the difference between the historical value of a corps tangible assets & liabilities, divided by the number of shares outstanding.
Par Value Meaningless for investors. An arbitrary value the company give the stock n its articles of incorporation, and it has no effect on the stock's market price.
Capital in excess of par a.k.a. paid-in surplus, capital surplus, or paid-in capital When a corporation sells stock, the money received exceeding par value is recorded on the corporate balance sheet as this.
Voting Rights It is the right of common stockholders to exercise their control of a corporation by electing Board of Directors, voting on substantial changes in the corporations business, such as mergers or acquisitions, & allowing additional common stock
Statutory Voting Allows a stockholder to cast one vote per share owned for each item on a ballot.
Cumulative Voting Allows stockholders to allocate their votes in any manner they choose. May be advantageous for small shareholders by giving them greater opportunity to offset the votes of large shareholders by combining all their shares on a single seat.
Proxy When stockholders are unable to attend the annual stockholders meeting, they vote by means of, ________, a form of absentee ballot.
Antidilution Provision When a corporation raises capital through the sale of additional common stock, it may be required by law or its corporate charter to offer the securities to its common stockholders before the general public. This is known as?
Preemptive Right Stockholders have the right to buy enough newly issued shares to maintain their proportionate ownership in the corporation.
Limited Liability Stockholders cannot lose more than the amount they have paid for a corporation's stock. This protects stockholders from having to pay a corporations debts in bankruptcy.
Bullish (Long the stock) Investor who buys shares and expects the stock to increase in price. The act of buying stock.
Bearish (Short the stock) Investor who sells shares he has borrowed, with the intent of buying them back at a lower price in the future for return to the owner (sell high now, buy back low later). The act of selling stock.
Capital Appreciation An increase in the market price of shares.
Capital Gain When an investor sells a security for more than it was purchased for, this is defined as?
Capital Loss When an investor sells a security for less than it was purchased for, this is defined as?
Market Risk The chance that a stock will decline in price at a time that the investor needs the money is a risk of owning common stock.
Business Risk The level of risk, including the speculative nature of the business, the management of the business, the philosophy of the business, and so on.
Created by: gregt864