Sie unit 2

Risk of common stock

- value risk/ failure - dividends not guaranteed - last position in liquidation/ residual value

rule 144a

-allows nonregistered foreign domestic securities to be sold to certain institutional investors in the US without holding period requirements. -qualified institutional buyers (QIB) have a minimum of 100 million in assets

the board of directors of the abc corporation declares a $.25 dividend on Monday May 20. The dividend will be paid on Friday August 5, to holders of the common stock as of Tuesday, July 5. what is the most likely ex-dividend day

1 business day July 4 holiday; weekend July 1

Rule 144 limits the amount of shares an affiliate of a company may sell to

1% of the shares outstanding or the average weekly volume of trading in the previous four weeks, whichever is greater.

what type of voting is there for the board of directors

1. shares x vacancies= number of votes 2. statutory: 1 vote per share, per position open. Most likely 3. cumulative: shareholders may cast all votes anyway they choose

large-cap stock

10 billion plus

under rule 144 affiliate (insider) shares 10 million shares week 1 80,000 week 2 130,000 week 3 130,000 week 4 100,000 **most recent 4 wks

10 million x 1% 10mill x .01= 100 k 440,000/ 4 weeks= 110,000 may sell GREATER of the two= 110,000

an investor owns 100 shares of ABC at $50 per share. If ABC declares a 3:2 stock dividend what is your adjusted cost basis?

100 shares x 50 = 5,000 100 x 3/2= 150 shares after the action 5,000/ 150= $33.33

an investor owns 100 shares of ABC at $50 per share. If ABC declares a 10% stock split what is your adjusted cost basis

100 shares x 50 = 5,000 Shares after the action+ 100 + 10%= 110 shares adjusted cost basis= 5,000/ 110= $45.45

Midcap Stock

2 billion to < 10 billion

Your customer owns 2,200 shares of LMN common stock. LMN Corporation issues stock rights related to an additional offer of shares that will increase the company's common shares by 20%. How many rights will your customer receive?

2,200 rights

An investor owns 100 shares of abc common stock at the current market price of $40 per share. If KAP conducts a 2:1 stock split, the investor's post-split stock position will be:

2/1 X 100= 200 shares 1/2 x $40= $20 aggregate value will stay the same

small-cap stock

300 million to < 2 billion

rule 144 restricted stock held by affiliate

6 mo hold and has volume limits apply therafter

penny stock

< $5 per share unlisted

buy back and tender offer

A buy back is when a company buys back its own stock in the marketplace, and a tender offer is when a company offers to purchase a certain number of its shares at a certain price.

Harry's Burgers has announced a tender offer for 20 million shares of Jim's Junkfood Corner at $30 a share. If Harry's secures all the shares then they will control Jim's. The shareholders of Jim's, that submit their shares to the tender offer, will realize ______

A capital loss occurs if their cost basis is greater than the tender price A capital gain occurs if their cost basis is less than the tender offer.

Stock Buyback

A company's purchase of shares of its own stock on the open market. generally, cash is received and its treated as a sale of the position

Rule 144 covers all of the following transactions except A) non-affiliate trades on an exchange. B) trades on an affiliate in the over-the-counter market. C) trades of a newly issued nonregistered security. D) trades by an affiliate on an exchange.

A) non-affiliate trades on an exchange.

A shareholder had arranged to vote by proxy at the corporation's annual shareholders' meeting, but later decided to vote the shares personally. All of the following statements regarding this situation are true except A) the shareholder must accept the proxy's decision. B) the shareholder may instead vote personally as they wish. C) the shareholder may still abstain from voting altogether. D) the proxy may be assigned to yet another person.

A) the shareholder must accept the proxy's decision. If a shareholder decides not to abide by the decision to assign a proxy to a particular person, the decision can easily be abrogated. The shareholder may still abstain, may vote the shares personally or by mail or online, or may reassign the proxy to another.

What is the primary benefit for an American investor when purchasing an American depositary receipt (ADR)?

ADRs are a type of equity security designed to simplify foreign investing for Americans. ADRs provide Americans with an easy way to invest in foreign companies that might otherwise be difficult or impossible to own. This overseas exposure provides investors with additional diversification within their portfolio.

Rule 144 - Restricted Stock

Allows holders of unregistered securities to sell to the public - 6 mo hold - free to sell therafter

Mutual funds are:

An investment that holds a wide range of different investment instruments, providing diversification

Which of the following is true regarding taxation of dividends paid by American depositary receipts? A) Any funds withheld may be paid to the investor by the foreign government. B) The dividends may be subject to withholding by the foreign government. C) Dividends are received tax free by U.S. investors. D) The dividends may be subject to withholding by the U.S. government.

B) The dividends may be subject to withholding by the foreign government. Dividends paid to a U.S. investor may be subject to a withholding tax by the home country of the underlying foreign stock issuer. In many cases, the amount of tax withheld by the foreign government is applied as a credit against the investor's U.S. tax liability. These withheld funds are paid out by the U.S. government to the investor, not the foreign government. These dividends are taxed as investment income.

________________ stocks are better suited for conservative investors since each is primarily an income investment and has limited growth prospects.

Bonds and preferred stocks

Mr. Smith purchases 2% of MES Corporation's common stock. Four years later Mrs. Smith purchases 9% for her own account.

Both Mr. and Mrs. Smith are considered control persons If a 10% or more interest is held by immediate family members, then all those family members owning voting stock are control persons. In this instance the combined ownership is more than 10% (2% + 9% = 11%).

Which of these is an equity security? A) Debentures B) Municipal bonds C) Mortgage bonds D) Preferred stock

Common and preferred stock are examples of an equity security. Bonds of any type by comparison are certificates of indebtedness—debt instruments.

Because common stock can be sold or given away, it is considered to be

Common stock is freely transferable to anyone who wants to buy it or receive it as a gift. In this regard, shareholders have the right to sell or give away their shares without permission of the corporation.

stock dividend

Corporation's distribution of its own stock to its stockholders without the receipt of any payment. not taxable

All of the following would be included in a notice of corporate action regarding a stock dividend except A) the rate of the dividend. B) the declaration date. C) the record date. D) the stock's issue date.

D) the stock's issue date.

derp

Declarate date: When the BOD approves the dividend payment Ex-Dividend date: one business day before the record date, or two business days after the trade date (regular way settlement), stock must be purchased before Ex date Record date: when stockholders receive the dividend distribution Payable date: when the shareholders receive dividend checks (the actual payment)

BigTech Computers, Inc., trades over the counter, and the board has declared a $0.25 per share dividend on Tuesday, May 2. The dividend will be paid to holders of record of BigTech common stock as of Tuesday, May 24, and will be paid out on Wednesday, June 8. Who will set the ex-dividend date?

FINRA On the basis of the dividend record date, the Financial Industry Regulatory Authority (FINRA)—or the exchange if the stock is listed on an exchange—declares an ex-date. Because this stock trades over the counter, it is FINRA that will set the date. The ex-date is typically one business day before the record date.

American Depository Receipts (ADRs)

Foreign shares held by a custodian, usually a U.S. bank, in the issuer's home market and traded in dollars on the U.S. exchange

A shareholder owns preferred shares that allow for the possibility of receiving more than the stated dividend. This type of preferred share would be known as A) callable. B) adjustable. C) convertible. D) participating

In addition to the fixed stated dividend, participating preferred stock offers its owners the possibility of receiving a share of corporate profits that remain after all dividends and interest due other securities are paid.

Possible benefits of owning common stock do not include which of the following? A) Potential to participate in company profits B) Interest income C) Hedge against inflation D) Potential capital appreciation

Interest income Bonds pay interest. Stocks can share profits by paying dividends.

M&A (Mergers and Acquisitions)

It is the consolidation of companies or assets through various types of transactions generally not a taxable event if shares are received to replace canceled shares

adjustable preferred stock

Pays out a dividend modified by changes in a benchmark rate 1. Usually tied to treasury bills

benefits of common stock

Potential capital appreciation Income from dividends Hedge against inflation limited liability

Participating Preferred Stock

Preferred stock that shares with common stockholders any dividends paid in excess of the percent stated on preferred stock. ex. 6% (stated) on $100 par and participating 9% 6%+ 3% to get to 9%

callable preferred stock

Preferred stock that the issuing corporation, at its option, may retire by paying the call price plus any dividends in arrears. issuer will only call if to their advantage-- when IR fall

convertible preferred stock

Preferred stock with an option to exchange it for common stock at a specified rate. par/ conversion price= # common stock

An investor has some stock held in street name and has just received proxy statements forwarded by the broker-dealer for an upcoming shareholders' meeting. If the investor wishes the shares to be voted as recommended by the issuer's management, which of the following must the investor do?

Sign and return the proxy statements by the tenth day before the meeting

An investor purchased 100 shares of MJS on June 19, 2015 at a price of $40 per share. On June 1, 2016, MJS declared a 25% stock dividend. On July 1, 2016, the investor sold 50 shares of the MJS at $50 per share. Which of these statements is correct? The adjusted cost basis of the shares is $30. The adjusted cost basis of the shares is $32. There is a short-term capital gain on 25 shares and long-term gain on the other 25 shares. There is a long-term capital gain on all of the shares sold.

The adjusted cost basis of the shares is $32. There is a long-term capital gain on all of the shares sold.

All of these dates are declared by the board of directors of a corporation except A) the payable date. B) the ex-dividend date. C) the record date. D) the declaration date.

The ex-dividend date is declared by the regulator that controls the trading location (exchange or OTC).

ABC Corporation cumulative preferred stock would pay dividends in what order?

The in arrears dividends, current preferred dividends, then common dividends

declaration date

When a company's board of directors (BOD) approves a dividend payment it is recognized as the date the dividend was declared

cash dividend

a cash distribution of earnings by a corporation to its shareholders taxable

While preferred shares tend to be less volatile than common shares, one type of preferred is noted as being even more stable in price than the others. This would be

adjustable rate.

Priority at dissolution for preferred shareholders means that they are paid

after all creditors. before common shareholders. While preferred shareholders would not be paid until all creditors debts have been satisfied, they are paid first of the equity securities, which means they are paid before common shareholders.

broker/ dealing selling 144 stock is acting in _________

agency capacity (unless market maker)

preferred stock

an equity security A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do. no voting right price tends to fluctus ate inversely with IR

Solicited transactions

are nonexempt, and the rules therefore apply.

Blue-chip stocks

are the equity issues of financially stable, well-established companies that have demonstrated their ability to pay dividends in both good and bad times.

Which of the securities would likely provide the greatest potential for capital appreciation?

common stock

affiliates

directors, officers and shareholders owning directly or indirectly 10% or more of outstanding voting stock

An American depositary receipt is a

domestic security representing a foreign security in U.S. markets.

A share of stock in the hands of a stockholder represents

entitlement to receive profits through dividends when distributed and the right to vote for who will serve on the board of directors (BOD).

Another term for stocks and bonds is

equity and debt

A customer owns 1,000 shares of stock subject to a 1:3 reverse stock split. The position will now consist of

fewer shares worth more per share with the same net position value With a reverse split, the position will now consist of fewer shares, but each share's value will be adjusted upward. As with all adjustments, the net position value remains unchanged before and after the adjustment.

spin-off

generally, not a taxable event if shares are received

takeover

generally, not a taxable event if shares are received to replace canceled shares

parity

if common stock position is valued the same as conversion

Issuers are not required by the Securities Exchange Commission (SEC) to give notice of corporate actions to shareholders for actions such as

interest on the issuer's bonds. Because the payment of bond interest is an obligation of a stated amount (i.e., the coupon rate) on a stated date (the two semiannual payment dates), notice to the markets is not required. Reverse splits and warrants are not regular happenings, and even though some companies have paid regular quarterly dividends for more than 100 years, those dividends can vary in amount or could be halted and therefore require notification to the marketplace

Treasury Stock

issued- treasury = outstanding

The growth potential in the price of preferred shares is generally considered to be

less than that of the issuer's common shares

rule 144 stock held by affiliate

no hold period but volume limits always apply

Straight Preferred stock (noncumulative)

no special privileges, dividends not paid are never recovered

A penny stock

non-Nasdaq listed (OTC) stock trading under $5 per share. If a stock is listed on an exchange or listed on Nasdaq, it is not a penny stock, regardless of price.

On October 15 of last year, ABC Company declared a 3-for-1 reverse split. What are the tax consequences for this corporate action?

none There are no tax consequences for a split, reverse or otherwise.

tender offer

offer to buy shares made by a prospective buyer directly to a target corporation's shareholders, who then make individual decisions about whether to sell generally, cash is received and its treated as a sale of position

features associated with preferred stock

preference over common stock shares in receiving dividends preference over common shares in liquidation the possibility of receiving dividends in arrears

capital gain

profit realized when buying and then selling the shares. Remember, dividends paid to a U.S. investor may be subject to a withholding tax by the home country of the underlying foreign stock issuer. In many cases, the amount of tax withheld by the foreign government is applied as a credit against the investor's U.S. tax liability. Any trading profits (capital gains) from an ADR would only be taxable here in the United States.

Each of the following activities would be deemed by market regulators to be manipulative behavior except A) proxy solicitation. B) front running. C) marking the open or the close. D) capping.

proxy solicitation. Proxies are permissible to be solicited. The Securities and Exchange Commission (SEC) requires a company to give stockholders information about the items to be voted on and allow the SEC to review this information before it sends the proxies to shareholders.

Cumlative preffered stock

receive current dividend plus any dividends in arrears

Rights reserved for the holders of a corporations common stock

right to vote for members of the BOD right to transfer shares right to maintain their percentage of ownership in a stock rights offering

De Minimus Exemption

sales by affiliates in amounts not exceeding 5,000 shares or $50,000 in sales proceeds are permitted without form 144

Transactions where the penny stock rules are applicable would be those that

solicited

A company's board of directors has voted to divest itself of all shares of a subsidiary to create a new company. This is a type of corporate action best characterized as

spinoff

Equity is to debt as

stock is to bond. Stocks are the most common example of equities while bonds are the most common example of debt securities.

Common dividends may be declared, increased, reduced, or suspended by

the BOD

The market price of a company's common stock could be affected by

the company's earnings. changes in the business cycle. Federal Reserve Board (FRB) policies. International conflicts.

Rule 144A regulates:

the trading of restricted securities to institutional investors known as qualified institutional buyers (QIBs).

Unsolicited transactions

those not recommended by the broker-dealer or registered representative are exempt from the penny stock rules

A significant risk of investing in common stocks is

volatility in share prices.

Owners of common stock can

vote on crucial corporate decisions and on BOD (board of directors)

cumulative voting

voting system in which all votes that one shareholder is allowed to cast can be cast for one candidate for the board of directors favors minority shareholders

Rights and Warrants

warrants- long term and exercise above CMV (current market value) preeamptive/ stock rights- short term and exercise below CMV