Chapter 7: Equity Securities

A company's shareholder equity at the end of the year is $20,000. It has to pay its preferred stock shareholders $10,000. The company issued a total of 10,000 shares. How much is each share worth?

$1 -Using the equation Shareholders Equity-Preferred Stock Payments/# of shares issued we get: $20,000-$10,000/10,000 = $1 per share

Adjustable-rate preferred stock is:

A type of preferred stock in which dividends vary with a specified benchmark, typically the T-bill rate

What is preferred stock?

An investment security which, depending on the issuing company, can represent ownership in a corporation along with being a debt instrument of the company

What are the two main types of stock?

Common and Preferred

Name two types of preferred stock.

Cumulative preferred stock and convertible preferred stock

What is the payment shareholders receive from companies called?

Dividends

Which is the most important document that should be read to ensure an informed decision is being made regarding preferred stock?

Prospectus -It is important to read the prospectus to ensure you are making an informed decision regarding preferred stock.

What do you call a person who owns stock in a company?

Shareholder

What is a benefit to owning preferred stock over owning common stock?

The dividend of preferred stock must typically be paid prior to common stockholders receiving dividends.

What advantage does the common stock shareholder have over the preferred stock shareholder?

Votes on Board of Directors

A sponsored American depository receipt (ADR) is:

an ADR issued by a US bank and backed by a non US company's shares.

Restrictions for stockholders may include:

becoming a member of the Board of Directors.

American depository certificates are _____

certificates issued by banks backed by common stocks of a foreign company.

Common stockholders

have a say in management.

Preferred stockholders

may have warrants attached to their stock..

An unsponsored American depository receipt (ADR) can _____

only be traded on over-the-counter markets.

Warrants attached to stock are 'sweeteners' that allow:

preferred stockholders to purchase a common stock at a predetermined price.

Preemptive rights allow the common stockholder to

purchase additional common stock to maintain his or her percentage/portion of the company.

One of the requirements for an American depository receipt (ADR) that is fully registered with the SEC is that:

the foreign company must publish financial statements.