SIE EXAM PREP CHAPTER 1

ABC company has 100,000 shares of common authorized, 20,000 shares of common issued and 10,000 shares of common outstanding. It has how many shares of treasury stock?

10,000; Treasury stock are shares that have been repurchased by the issuer. If 20,000 were issued and there are 10,000 outstanding (20,000 - 10,000 = 10,000), then there are 10,000 shares of treasury stock. Treasury stock is treated as though it is still in the hands of the shareholder, in this case the corporation, hence it is still considered issued stock, however it has no voting rights and pays no dividends.

C. preemptive right

A preemptive right allows existing shareholders to buy enough shares in a follow-on offering to maintain their a proportionate share of ownership in the company. For example, if a company has 1 million shares of stock outstanding and one shareholder owns 300,000 shares, then that shareholder would be allowed to buy another 300,000 shares of a new 1 million share offering before it reaches the public. These shares are usually issued at a discount to the public offering price.

The right that common stockholders have to buy shares of newly issued stock is called a:

A preemptive right allows existing shareholders to buy enough shares in a follow-on offering to maintain their a proportionate share of ownership in the company. For example, if a company has 1 million shares of stock outstanding and one shareholder owns 300,000 shares, then that shareholder would be allowed to buy another 300,000 shares of a new 1 million share offering before it reaches the public. These shares are usually issued at a discount to the public offering price.

A typical share of common stock has all of the following properties, except:

Callability is the right of a security's issuer to "call" the security, meaning that the security holder must return it to the issuer in exchange for some compensation defined in the call provision. Callability is much more common with bonds than stocks. Common stock is a form of equity. Common shareholders generally have the right to vote for corporate directors and to vote on corporate resolutions. Non-voting common stock does exist, but is rare. Typical common stock is freely transferable, with some exceptions such as restricted shares purchased in a private placement.

XYZ Corporation has 2.5 million authorized shares, 1.5 million issued shares, and 400,000 treasury shares. If XYZ's shares are currently trading at $10/share, what is the company's market capitalization?

Market capitalization is calculated by multiplying total shares outstanding by share price. Total shares outstanding is the number of issued shares minus the number of treasury shares, which in this example is 1.1 million (1,500,000 - 400,000 = 1,100,000). Multiplying that number of shares by XYZ Corporation's $10 share price gives a market capitalization of $11 million (1,100,000 x $10 = $11,000,000).

Authorized shares

The number of shares that the corporation may issue is called authorized shares. The portion of authorized shares that has been sold to shareholders is called issued shares. Outstanding shares are total number of shares in circulation, meaning they are issued shares minus treasury stock. Common stock is stock that has already been issued, and thus it is not necessarily the same thing as authorized shares.

ABC company has 100,000 shares of common authorized, 20,000 shares of common issued and 10,000 shares of common outstanding. It has how many shares of treasury stock?

Treasury stock are shares that have been repurchased by the issuer. If 20,000 were issued and there are 10,000 outstanding (20,000 - 10,000 = 10,000), then there are 10,000 shares of treasury stock. Treasury stock is treated as though it is still in the hands of the shareholder, in this case the corporation, hence it is still considered issued stock, however it has no voting rights and pays no dividends.

All of the following are true regarding authorized shares, except:

When a corporation is organized, the corporate charter must state how many shares of each class of stock are authorized to be issued. Typically, a new corporation will authorize more shares than it needs initially so that it will have a reserve of shares to draw on if it needs to raise additional capital. Otherwise, in the future, if it needs more shares than are authorized, the corporation will have to amend its charter by shareholder vote. Also required is approval from the secretary of state of the state where the corporation is registered. Such changes to increase the number of shares of stock can be time-consuming and expensive.

UNDERWRITER

a specialized type of bank that buys the shares from the company preparing an IPO and sells them to investors

A shareholder of a public company may vote his shares

A shareholder of a public company may vote in-person at shareholder meetings or by proxy. A proxy is a written statement from the shareholder authorizing someone else to vote on the shareholder's behalf according to the shareholder's wishes. A proxy is like an absentee ballot except it authorizes another individual to vote on the shareholder's behalf. A tender offer is an offer to purchase a large number of shares of a publicly traded company, usually for more than the current price, for a limited time.

Fixed Annuity

Fixed annuities and other insurance contracts (including endowment policies) that don't have a "variable" feature allowing the owner to pick their investments out of a menu of choices are not considered to be securities. Equity securities are certificates representing ownership interest in a public or private corporation. Equity securities include common stock, preferred stock, warrants, rights, American Depository Receipts, and REITs. Equity securities are also traded on secondary markets. Unlike debt instruments, however, which promise only interest and the repayment of principal, owners of equity securities are able to profit in a company's financial gains. When a company does well, or at least is perceived to be doing well by investors, the price of the equity security will go up in the secondary market. The investor will make money through the gain in the security's value, always hoping to buy at a low price and sell at a higher price. In fact, the gains on equity securities are potentially without bound. Equity investors also risk sharing in a company's financial losses; those losses, however, are limited to the owner's investment in the company.

Which of the following is not a self-regulatory organization?

Security industry SROs include the exchanges (for example, the NYSE), FINRA, and the MSRB. The SEC is a governmental agency and not an SRO.

Treasury shares are owned by:

THE ISSUER; Treasury shares, also called treasury stock, are shares that have been issued but are not owned by investors; instead, they are owned by the issuing company. Do not confuse Treasury shares with U.S. Treasury securities (e.g., Treasury bonds, Treasury bills, Treasury notes), which investment vehicles that represent debt obligations of the United States government.

NowCo is currently selling shares in an IPO. SoonCo is preparing to commence a Regulation A offering next month. Which of these companies are considered issuers?

When the law refers to an issuer, this means any entity that has issued or proposes to issue securities. Therefore, SoonCo would be referred to as an issuer even though it has not begun its offering. The information that one offering is an IPO and the other is a Reg A offering was not needed to answer the question.

When a customer purchases penny stocks, a broker-dealer must provide each of the following except?

Whenever a customer purchases penny stocks, he must be provided with a copy of a Risk Disclosure Document prior to his first transaction. He must also be given the current market bid and offer, if any exist, for the penny stock. The firm must also provide customers with information on the amount of compensation that it will receive from any source in connection with the trade. Finally, the firm must also send customers monthly, and not quarterly, account statements showing the market value of each penny stock held in the customer's account.