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SIE - Unit 1

Kaplan unit 1

QuestionAnswer
What are the two basic types of securities Equity (stocks) and Debt (bonds).
What does a stock represent Ownership (equity) in a corporation.
What does a bond represent Debt owed by the issuer.
Who owns a corporation Common and preferred shareholders.
Who lends money to a corporation Bondholders.
Why do corporations issue stock To raise capital.
What is authorized stock The maximum number of shares a corporation may issue.
What is issued stock Authorized shares that have been sold.
What is outstanding stock Issued shares currently held by investors.
What is treasury stock Issued shares repurchased by the corporation.
Do treasury shares have voting rights No.
Do treasury shares receive dividends No.
Outstanding shares = Issued shares minus Treasury shares.
Large-cap market capitalization More than $10 billion.
Mid-cap market capitalization $2 billion to $10 billion.
Small-cap market capitalization $250 million to $2 billion.
Who elects the Board of Directors Common shareholders.
What is a proxy An absentee ballot used to vote.
Statutory voting benefits whom Large shareholders.
Cumulative voting benefits whom Small shareholders.
Who declares dividends Board of Directors.
Are common dividends guaranteed No.
What are the three types of dividends Cash, Stock, Product.
Cash dividends are usually paid how often Quarterly.
Are stock dividends taxable when received No. They reduce the cost basis per share.
Which dividend is usually taxable in the year received Cash dividend.
What is limited liability Shareholders cannot lose more than they invested.
What is the biggest risk of owning common stock Loss of principal due to declining stock value.
Who has the lowest priority in bankruptcy Common shareholders.
What are the benefits of owning preferred stock Dividend preference and priority over common stock in liquidation.
What are the risks of preferred stock Interest rate risk, purchasing power risk, and dividends are not guaranteed.
Straight preferred means Missed dividends are lost forever.
Cumulative preferred means Missed dividends accumulate and must be paid before common dividends.
Callable preferred means The issuer may redeem the shares; dividends stop on the call date.
Convertible preferred means Can be converted into common stock.
Adjustable-rate preferred means Dividend adjusts with interest rates.
Participating preferred means May receive extra dividends in profitable years.
Which preferred stock is most appropriate for investors seeking stable income Straight or cumulative preferred.
Which preferred stock is least appropriate for investors seeking fixed income Adjustable-rate preferred.
Who sets the Declaration Date Board of Directors
Who sets the Ex-Dividend Date for an exchange-listed stock The exchange (NYSE or Nasdaq).
Who sets the Ex-Dividend Date for an OTC stock FINRA.
Who sets the Record Date Board of Directors.
Who sets the Payable Date Board of Directors.
When must an investor buy a stock to receive the dividend Before the ex-dividend date.
Who has voting rights Common shareholders only.
Who has preemptive rights Common shareholders only.
What is a preemptive right The right of existing common shareholders to purchase enough newly issued shares to maintain their percentage ownership in the corporation.
What does preemptive mean It means existing shareholders get the first opportunity to buy newly issued shares before the public to avoid ownership dilution.
Do preferred shareholders have voting rights No.
Do preferred shareholders have preemptive rights No.
Must every corporation issue preferred stock No. Every corporation issues common stock, but preferred stock is optional.
Are preferred dividends guaranteed No. They must be declared by the Board of Directors.
When a corporation calls preferred stock, what happens Trading stops and dividend payments cease on the call date.
Which type of preferred stock is least affected by changing interest rates Adjustable-rate preferred stock.
Which preferred stock allows the holder to receive extra dividends in profitable years Participating preferred stock.
A 3% preferred participating to 6% stock can pay a maximum dividend of what 6% total (3% stated dividend plus up to an additional 3%).
Preferred stock dividends are calculated using what The stated percentage multiplied by the par value.
If preferred stock has a par value of $60 and pays 4%, what is the annual dividend $2.40 ($60 × 4%).
What par value should you assume for preferred stock if none is given $100.
Who gets paid first in liquidation Creditors (bondholders), then preferred shareholders, then common shareholders.
What is one benefit of common stock Potential capital appreciation.
Are common stock investments protected against loss of principal No. Investors can lose their entire investment.
Why are growth stocks called growth stocks They reinvest earnings to grow the business and typically pay little or no dividends.
Do growth stocks typically pay high dividends No. They usually pay little or no dividends.
Which investment is best for an investor seeking quarterly income Utility company stock.
How often do utility company stocks typically pay dividends Quarterly.
How often do corporate bonds pay interest Semiannually (twice per year).
How often do Treasury bonds pay interest Semiannually (twice per year).
How often do STRIPS make payments They do not make periodic interest payments; they pay only at maturity.
What is a penny stock An unlisted equity security trading below $5 per share.
Before a customer's first solicited penny stock purchase, what is required Risk disclosure document, signed acknowledgment, suitability determination, and signed suitability statement.
When do the special penny stock suitability rules NOT apply When the transaction is unsolicited (the customer initiates the trade).
Who is considered an established customer for penny stock rules A customer with an account open for at least one year with a deposit, or one who has purchased penny stocks of three different issuers on three different days.
What right do both ADR holders and domestic common stockholders share The right to freely transfer (sell) the security.
Do ADR holders always have voting rights No. Depositary banks are not required to pass voting rights through to ADR holders.
What is the main purpose of an ADR To allow U.S. investors to buy foreign company stock in U.S. markets using U.S. dollars.
Rule 144: What is restricted stock Unregistered stock acquired through a private placement.
Rule 144: What is control stock Stock owned by an affiliate (officer, director, or large shareholder), whether registered or unregistered.
Does an affiliate selling registered stock have a holding period No. Registered stock may be sold immediately, but Rule 144 volume limits apply.
Does a nonaffiliate selling restricted stock have a holding period Yes. Six months.
After a nonaffiliate satisfies the six-month holding period for restricted stock, are there volume limits No. The stock may be sold freely.
Affiliate = Officer, director, or controlling shareholder.
Nonaffiliate = Ordinary investor with no control over the company.
Rule 144 memory trick Restricted = Holding Period. Affiliate = Volume Limits.
What penny stock document must every customer receive before the first solicited transaction The Penny Stock Risk Disclosure Document.
Do penny stock rules apply to unsolicited transactions No.
Do established customers have to sign a suitability statement for penny stocks No.
How often must statements be sent to accounts holding penny stocks Monthly.
Preferred stock dividend is based on what The stated percentage of PAR VALUE.
Does the preferred dividend change when the market price changes No.
Preferred dividend memory trick PAR pays. Market doesn't matter.
Created by: ria868
 

 



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