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SERIES 6
Terms to know
24
Finance
Professional
11/25/2008

Additional Finance Flashcards

 


 

Cards

Term
COMMON STOCK
Definition

It's primary purpose is to raise business capital.

Stock representing equity ownership in a corporation.

Term

AUTHORIZED STOCK

Definition

The maximum number of shares of stock that a company can issue.

It's specified initially in the company's charter, but it can be changed with shareholder approval.

 

-AKA- authorized shares or shares authorized.

Term
ISSUED STOCK
Definition
The total number of a company's shares that have been sold and are held by shareholders.
Term
TREASURY STOCK
Definition
Stock a corporation has issued snd subsequently repurchased from the public.
Treasury stock has:
  • no voting rights,
  • does not receive dividends
  • can be reissued ot retired
Term

OUTSTANDING STOCK

Definition
The shares of a corporation's stock that have been issued and are in the hands of the public
These are shares that the company has not repurchased. 
-AKA- shares outstanding or investor-owned stock.
Term
MARKET VALUE
Definition

A security's last reported sale price or its current bid and ask prices 

It is the price investors must pay to buy the stock

 

-aka- market price or current market value

Term

PAR VALUE

Definition

The nominal dollar amount assigned to a security by the issuer.

For an equity security (common stock), par value is usually a very small amount that bears no relationship to its market price,

For preferred stock the par value is $100

For bonds the par value is $1,000

Term
BOOK VALUE
Definition

A measure of the net worth of each share of common stock.

Term
STATUTORY VOTING
Definition

Shareholders voting for the board of directors may not give more than one vote per share to any single nominee
Example:
An investor owns 100 shares of stock in the ABC company. An election of the BOD is coming up and several candidates are running to fill 3 seats. The investor thus has total of 300 votes- 100 for each seat. Under statutory voting, he would allocate 100 votes to each of the 3 candidates he prefers.
Term

CUMULATITVE VOTING

Definition

A voting system that gives minority shareholders  more power, by allowing them to cast all of their board of director votes for a single candidate.
Example:
An investor owns 100 shares of stock in the ABC company. An election of the BOD is coming up and several candidates are running to fill 3 seats. The investor thus has total of 300 votes- 100 for each seat. Under cumulative voting, he would, if he wished, allocate all 300 of his votes to a single candidate for just one of the seats.
Term

EXCHANGE LISTED STOCKS

Definition

Nasdaq (National Association of Securities Dealers Automated Quotation) System-

Over the counter stocks that have national interest are listed

 

3 Market Designations:

Nasdaq Global Select Market

Nasdaq Global Market

Nasdaq Capital Market (domestic)

Term
OTC (Over-the-Counter) Market
Definition

Securities that are not traded on the exchange. They trade on the over-the-counter bulletin board (OTCBB)

-AKA-

Non-Nasdaq securities

Term
Preferred Stock
Definition

is an equity security because it represents ownership in the corporation. However, it does not normally offer the appreciation potential associated with common stock.

 

**Preferred stock is issued as a fixed-income security with a fixed dividend. **Its price tends to fluctuate with changes in interest rates

**It is nonvoting and no preemptive rights

**Preferred stockholders receives their dividends before common stockholders

**If a corporation goes bankrupt, preferred stockholders have a priority claim over common stockholders

Term

STRAIGHT PREFERRED STOCK

Definition

Preferred stock with no special features byond the stated dividend payment.

*** Missed dividends are not paid to the holder ***

Term

CUMULATIVE PREFERRED STOCK

Definition

Preferred stock on which dividends accrue in the event that the issuer does not make timely dividend payments.

 

**With cumulative preferred, dividends in arrears are made up.

**Most preferred stock is cumulative preferred.

**Cumulative preferred typically has a lower stated dividend than straight preferred (less risk equals less reward).

Term

CALLABLE PREFERRED STOCK

Definition

Which a company can buy back stock from investors at a stated price after a specified date. 

 

**Issuers are likely to call securities when interest rates are falling.

**Issuers call securities with high rates and replace them with securities that have lower fixed rate obligations.

Term
CONVERTIBLE PREFERRED STOCK
Definition

A preferred st

Term
INVESTMENT COMPANY
Definition

Is a corporation or trust that pools investors' money and then invests that money in securities on their behalf for a fee.

 

Term
FACE AMOUNT CERTIFICATE COMPANY
Definition

(FAC) is a contract between an investor and an issuer in which the issuer guarantees payment of a stated (face amount) sum to the investor at some set date in the future.

 

  • Pay a fixed rate of return
  • Do not trade in the secondary market but are redeemed by the issuer; and 
  • They are classified as investment companies
Term
UNIT INVESTMENT TRUSTS (UITs)
Definition

A unit investment trust (UIT) is an investment company organized under a trust indenture. A UIT functions as a holding company for its investors.

  • UITs are not actively managed; there is no board of directors or investement adviser
  • UITs shares (units) are not traded in the secondary market; they must be redeemed by the trust.
  • UITs are investment companies as defined under the Investment Company Act of 1940.
Term
MANAGEMENT COMPANY
Definition
The firm that organizes, manages, and administers a mutual.
Term
OPEN-END INVESTMENT COMPANY
Definition

Investment company that sells mutual funds to the public, issuing and redeeming shares on demand.
Term
CLOSED-END COMPANY
Definition
A fund with a fixed number of shares oustanding, and one which does not redeem shares the way a typical mutual fund does.
 
Question #1: Where do shares of closed-end companies trade?  
Answer #1: In the secondary market
 
Question#2: What types of securities can closed-end companies issue?
Answer#2: Common stock, preferred stock, and bonds
 
Question#3: Can fractional shares be purchased? 
Answer#3: No, only full shares can be purchased
 
Question #4: When must a prospectus be used?
Answer #4: Only in the IPO (no prospectus is given when the shares are purchased in a secondary market transaction)

 

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