Series 7 top off- unit 3
Stock dividend: If an investor owns 100 shares and the company declares a 20% dividend, what do they now own?
20 additional shares, bringing the total holding to 120 shares. Just as with stock splits, there is no real change in the overall value. $60/120%= now selling at $50
ABC has authorized 1 million shares of common stock. It issued 800,000 shares one year ago. It then purchased 200,000 shares for its treasury. How many shares are outstanding?
Issued stock - treasury stock = outstanding stock 800,000 - 200,000 = 600,000
A corporation is having a rights offering. The terms of the offering require six rights plus $60 to purchase one share. With the stock's current market price at $74 per share, the theoretical value of one right before the ex-rights date is
$2.00. Because the question is asking about the value before ex-rights, it means we use the cum-rights (with rights) formula; that is, the market price minus the subscription price divided by the number of rights it takes to buy one share plus one. Plugging in the numbers gives us ($74 - $60) ÷ (6 + 1) = $14 ÷ 7 = $2.00.
An investor had a $20,000 capital loss, a $15,000 capital gain, and $50,000 in income for the year. How much of the income is taxable?
$47,000 Capital losses may be used to reduce taxable income. The first step is to net the gains and the losses. This investor has a net loss of $5,000. Of that net loss, a maximum of $3,000 can be written off against the income for the year. That reduces the investor's taxable income to $47,000. The unused $2,000 of the net loss is carried forward to subsequent tax years until utilized.
Cindy castle purchase 100 shares abc common for $19 ps in Feb 2019. They declared 10% stock div May 2019. She then sold her shares for $13 three months later. What are the tax consequences?
$470 short term loss -Paid 1900 for 100 -received additional 10 shares - sold 110 shares for 1430 (110 at $13) all done in same year, so ST loss
Florence Forte purchased 100 shares of YXC common stock for $22ps on Feb 12 2018. She received a 10% stock dividend on May 18, 2019. She sold her shares at $25ps in June of the same year. what are the tax consequences of her trade?
$550 long-term gain Compare the cost to the proceeds -Paid 2200 for 100 shares -Then sold 110 shares for $25 per share= 2,750 2750-2200= 550 Holding period was from Feb 2018 to June 2019, more than a year, making it a LT gain
Your client owns 100 shares of CCC at $25. CCC declares a 25% stock dividend. After the ex-date, what will she own?
125 shares at $20 Stock dividends make the number of shares owned increase and the cost per share decrease. The overall value should remain unchanged before and after the adjustment: 125 shares × $20 = $2,500, and 100 shares × $25 = $2,500.
A customer owns cumulative preferred stock (par value of $100) that pays an 8% dividend. The dividend has not been paid this year or for the previous two years. How much must the company pay the customer per share before it may pay dividends to the common stockholders?
24 If the company is going to pay a common stock dividend, it must pay the preferred dividends first. A cumulative preferred stockholder must also receive all dividends in arrears. There is $16 due in back dividends, in addition to $8 this year, for a total of $24.
JDX Corporation's charter has authorized 10,000,000 shares of common stock. It has issued 5,000,000 shares and has 1,000,000 shares in its treasury. JDX decides to use all of the treasury stock to pay a dividend to shareholders. As a result, the number of outstanding shares is
5,000,000 Treasury stock is stock that has been issued and reacquired by the company. At that point, it is no longer outstanding in the hands of the public. Sending those shares out as a dividend puts them back in the hands of the investing public. Now, all of the five million issued shares are outstanding.
A preferred stock with a par value of $100 that pays $6 in dividends is known as what?
6% preferred **all dividends are paid quarterly
What kind of market is the OTC market?
A negotiated market
What is an ADR?
A receipt for shares of a foreign stock deposited with a custodian. Each ADR represents a specific number of shares in a foreign company held by a custodian. ADRs are securities that trade on the U.S. securities markets. Dividends are in US dollars.
Dividends may be paid to holders of A) American depositary receipts (ADRs). B) Treasury stock. C) warrants. D) rights.
A) American depositary receipts (ADRs).
An ADR represents A. A US security in a foreign market B. A foreign security in a domestic market C. A US security in both a domestic and a foreign market D. A foreign security in both a domestic and a foreign market
A. A US security trading in a foreign market
The 5% markup policy applies to which two of the following? Exempt transactions Agency transactions Principal secondary market trades New issues
Agency transactions and principal secondary market trades The 5% markup policy applies to all secondary market transactions. It does not apply to exempt transactions, transactions requiring the delivery of a prospectus, or issues sold at a fixed offering price.
How do stock exchanges operate historically?
As auction markets
What are the four types of common stock?
Authorized: corporate charter specifies the number of shares the company is authorized to use Issued: authorized stock that has been sold ro investors Outstanding stock: any stock the company has issued but are in the hand of investors Treasury stock: stock a corporation has issued and subsequently reacquired- does not carry the rights of outstanding common shares
The issuer of an American depositary receipt (ADR) is A) a foreign branch of a domestic bank. B) a domestic bank. C) a domestic branch of a foreign bank. D) a foreign branch of a foreign bank.
B) a domestic bank.
Which of the following represent ownership in a corporation? I. Debentures II. Convertible bonds III. Preferred stock IV. Common stock
III and IV
How do preferred stock prices tend to move with interest rates?
Inversely
Preferred stock comes with many different options. What type of preferred stock would be most advantageous to the investor if the issuing company had strong revenue and earnings that exceeded industry estimates? A) Callable B) Participating C) Cumulative D) Adjustable-rate
B) participating Participating preferred stock may receive an additional amount paid to shareholders based on superior performance of the issuer.
The Securities Exchange Act of 1934 regulates or mandates all of the following except A) manipulation of the secondary market. B) extension of credit to customers. C) full and fair disclosure on new offerings. D) creation of the SEC.
C) full and fair disclosure on new offerings The Securities Exchange Act of 1934 created the SEC and regulates the secondary market. The Securities Exchange Act of 1934 does not address full and fair disclosure issues; the Securities Act of 1933 addresses these issues.
Which of the following would least likely occur when a corporation engaged in a rights offering? A) The corporation would use a standby underwriter. B) After successful completion of the offering, the market price would decline slightly. C) The number of outstanding shares would increase. D) After successful completion of the offering, the market price would rise slightly.
D) After successful completion of the offering, the market price would rise slightly. Successful completion of a rights offering generally results in a slight decline in the market price of the stock. This is because the subscribers were able to purchase at a price below the current market.
Where does common stock fall in line in a corporate liquidation?
Last, because of this is is known as the most junior security
An investor who purchased 100 shares of REDP common stock on February 28, 2019, would receive long-term capital gain treatment if the stock is sold at a profit starting
March 1, 2020 Investors must own a security for more than 12 months before it becomes long term for tax purposes. The first day after February 28, 2019, is March 1, 2019. Twelve months later is March 1, 2020. Always count 1 day and then add 12 month so that, in this case, you don't come up with February 29 because 2020 is a leap year.
Which has preference in claim to assets in the event of bankruptcy, preferred or common?
Preferred stock (but it does not get to vote)
Regulation T
Regulation T is a collection of provisions that govern investors' cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities. According to Regulation T, an investor may borrow up to 50% of the purchase price of securities that can be bought using a loan from a broker or dealer. The remaining 50% of the price must be funded with cash.
What is the difference in statutory and cumulative voting?
Statutory: allows a stockholder to cast one vote per share owned for each item on the ballot Cumulative: allocate their total votes in any manner that they chose **cumulative voting benefits the smaller investor, whereas statutory benefits the larger
What year is portfolio income (dividends, interest, and net capital gains derived from the sale of a security) taxed in?
Taxed in the year in which it was earned
The KPL Corporation is considering having its stock listed on the New York Stock Exchange (NYSE). Who will make the final decision as to whether it will be listed?
The NYSE
For an investor who owns 100 shares valued at $20 per share, a 2:1 forward stock split would result in what?
The investor now owns 200 shares at $10 a share, still valued at the same $2,000
What are the differences between a warrant and a right?
Warrant: a certificate granting its owner the right to purchase securities from the issuer at a specified price. Usually offered as sweeteners. Often bundled as units. Unlike a right, a warrant is always a long-term investment Unlike rights, the purchase price is always higher than the current market price on date of issue. **warrants themselves do not pay dividends and do note vote
In a proceeds transaction for a customer where the proceeds from the liquidation of one stock are used to purchase another stock, the 5% markup policy is computed on the basis of
a combination of both the buy side and the sell side.
What is the formula for cum-rights? Consider the following: ABCs price per share is $41; the subscription per share is $30. Ten rights are needed to purchase one share of stock
cum (with) rights market price-subscription price ____________________________________________ number of rights to purchase 1 share + 1 41-30/10+1=$1
When you hear your firm's traders talking about institutions trading with a lack of transparency, they are probably referring to
dark pools.
what is the formula for ex-rights?
market price - subscription price ____________________________________________ number of rights to purchase 1 share
The 5% markup policy applies to all of the following except
municipal bond transactions The 5% policy does not apply to exempt securities transactions such as municipal bond trades. The policy applies to nonexempt securities and transactions on an exchange and in the OTC market, and it applies to both agency and principal trades.
The Nasdaq Stock Market permits listing for all of the following except
nonconvertible debt securities The Nasdaq Stock Market is an equity and equity equivalent market. Listed are common stock, preferred stock, warrants, limited partnerships, American depositary receipts, and convertible bonds. Straight debt securities are not part of Nasdaq.
What is the formula for shares of common?
par value/ conversion price = shares of common ** convertible preferred stock has less interest-rate risk than others
All of the following considerations apply to the 5% markup policy except
the customer's ability to pay.
ADRs are used to facilitate
the domestic trading of foreign securities.
A network of market makers that offers to trade securities not listed on an exchange is called
the over-the-counter (OTC) market.
what is the tax rate on short term gains?
the same as ordinary income (like salary)
what is the tax rate on long term gains?
the tax on long-term gains is the same as that of qualified dividends, generally 15%
What is a warrant?
warrant is a security that allows the holder to purchase shares of the underlying issue at a fixed price (above the current market price when issued) for an extended period (typically two years or longer). Call options are similar, except they are short-term securities (nine months at issue).