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Securites Series 6


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What is primarily a market for corporate securities?
Stock Market
What are the two basics ways a corporation raises money?
1. Debt Securities (Bonds)
2. Equity Securities (Stock)
The two methods of raising capital is appropiately called
Equity Securities is also known as__________
Debt Securities is known as
1. Equity Capital

2. Debt Capital
What does the net worth or stockholders equity consist of
equity capital (preferred and common stocks) plus the retained earnings
What are the profits that the corporation makes on the sale of its product or services that has not been distributed as dividends called
retained earnings or earned surplus
Name of the legal entity comprised of a volumtary association of person organizd under the corporate laws of the state called
What is a unit of corporate ownership
What does a corporation operate under?
charter granted by the state
What are the corporates financial obligations in order?
1. bond holders
2. general creditors
3. preferred stockholders
4. common stockholders
What are the two types of voting that a corporation offers common stockholders?
1. statutory voting
2. cumulative voting
The maximum number of shares permitted by the State Secretary to be issued by a newly chartered corportation.
Authorized Shares
The portion of the authorized stock that is actually sold to investors.
Issued Shares
The portion of authorized stock that has not yet been issued or sold
Unissued Shares
What is the name of shares that is issued in the charter of the corporation?
authorized shares
What indicates the total value of the shares of a company?
Market Capitalization
How do you determine the market capitalization of a company?
Multiply the current price of shares of the common stock by the number of shares outstanding
Name for market capitalization exceeding $5 billion.
Large Cap
Name for market capitalization between $1 and $5 billion
Mid Cap
Name for market capitalization under $1 billion
Small Cap
What is the stock called when a corporation re-acquires or buy back common stock which is then owned by the corp?
Treasury Stock
What stock does not have voting rights, does not receive dividends and not considered to be outstanding?
Treasury Stock
What is the arbitrary value palced on common stock at the time the stock is authorized?
Par Value
Name of the stock that is carried at a Stated Value on the corporations financial records.
No Par Stock
A receipt evidencing shares of a foreign corporation held on deposit or under the control of a U.S. Banking institiution.
American Depositary Receipt (ADR)
name of a contract to sell 100 shares of stock for a specified price and a specified time period
a put option
a 100 shares of stock is referred to as ___________.
anything less to called_____
1. round lot
2. odd lot
The term used that means the purchasers have to sign a letter attesting that they agree to hold the stock at least one year before reselling it in the open market.
The distribution of unregistered securities to a limited number of purchasers without the filing of a registration statement with the SEC.
private placement
An individual or corporation that purchased an unregistered security and offers it in a public distribution without an effective registration statement is called a
Statutory Underwriter
Penalty-fine and/or prison
When a coporation declares that stockholder will have twice as many shares for half the value what is this called?
Stock Split
Owners of this kind of stock entitled to a fixed dividend to be paid regularly before dividends can be paid on common stock. They also have claims to assets and no voice in management>
Preferred Stock
Order of obligation for a corporation.
preferred stock dividends
common stock dividends
What is the name of the Preferred stock issue that allows for the accumulation of any dividends not paid in prior years due to insufficient earnings. Note this dividend will be paid in full before the common stock in paid. Dividends called.
1. Cumulative preferred
2. Cumulative dividends
Which stock allows the preferred stock to be exchanged for a fixed number of common stock shares ?
Convertible preferred stock
Which stock fluctuates in value and therefore is used for growth, common or preferred?
Common stock
Which stock is tied to a fixed dividend rate and is primarily bought for income,
common or preferred?
Name for a feature which permits the corporation to redeem (buy back) its preferred stock at a fixed price?
In the callable feature the price the issuing corporation may elect to pay for the shares is stated on the stock certificate and is called the
call price
Name the preferred stock that in addition to a stated fixed dividend is also eligible to participate in the common stock dividend.
Participating preferred stock
A preferred stock can have more than one class, the one in first position is called
first claim preferred or prior preferred
An agent of a coproration responsible for the registration of shareowner' names on the company records and the proper re-registration of new owners when a transfer of stock occurs
transfer agent
How is Equity capital raised?
Through the issurance of stocks
Which stock has a prior claim on assets and earnings and has a fixed dividend?
Preferred stock
name the three options you might find with preferred stock
1. cumulative
2. convertible
3. callable
name of the certificate representing the corporations indebtedness to an investor.
This largest issuer of debt securities is
United States Goverment
Bond issues from state and local political entities are called
municipal bonds
Money borrowed through a bond issue for a minimum period of five years is called
long-term debt or funded debt
When the term goverment is used it is referring to _____.
When the term municipal security is used it is referring to ___________.
1. Federal Goverment
2. State or municipality
IN goverment issues the face amount or par value is what?
True or False Corporate debt securities can either be secured or unsecured.
Unsecured debt securities are backed by what?
reputation, credit record and financial stability
Corporation, particularly railroads and other transportation companies finance the acquistion of their rolling stock (locomotives) by issuing what?
equipment trust certificate
How does an Equipment Trust Certificate differ from any other bond isssue ?
A portion of the loan is paid off annually because the object securing the debt depreciates.
What is the name of the bond in which the corporation deposits securities it owns into a trust to serve as collateral for lenders?
Collateral trust bond
An unsecured long-term debt offering by a coporation, with a written promise to pay and are not secured by anything but general credit of corp.
Which has a senior claim secured or unsecured bonds?
Which debt security has a subordinate claim?
Debenture but is still before stockholders
Name the bond which is secured by the full faith and credit of an issuer with taxing power
General Obligation Bond (GO Bond)
Name a bond which is payable from the earnings of income producing enterprise such as water,sewer electric, toll bridge
Revenue bond
Which pays a higher yield, General obiligation or revenue? Why?
Revenue, because more risks, taxes are more secure than revenues
The financ for the construction of a manufacturing or commerical facility for the benefit of a private user can be done through
Industrial revenue bonds
Name the two types of government backings.
1. direct -gov't guarantee
2. moral- federal agencies
What do you call a security that can not be traded?
4 facts to know about
Series EE and HH Savings bonds
1.not marketable
2.always in registered form
3.Series EE purchased at
4.Series HH are isssued at
par and pay semi-annual int.
Name a short term debt obiligation of the U.S. Goverment
Treasury Bills
Name a debt obiligation that is issued weekly, pay no interest and are issued at discount from par value,highly liquid and offered in book entry form
Treasury Bills
A federal obligation with maturities of up to 10 years, carrying a fixed rate of interest and are issued, quoted and traded as a percentage of their face value
Treasury notes
Name two debt securities that are considered moral obligations of the US Goverment
Federal Farm Credit Banks
Federal Home Loan Banks
Interest received by investors on securities with the farm credit banks and Federal home loan banks are exempt from paying what taxes?
state and local taxes
Name the two types of goverment agency mortgage backed securities.
1.Federal National mortgage Association (Fannie Mae)
2. Goverment National Mortgage Association (Ginnie Mae)
a publicly owned, goverment-sponsored corporation that purchases and selle mortgages issued by the Federal Housing Administration (FHA) or Veterans Addministration(VA)
Federal National Mortgage Association (Fannie Mae)
A wholly owned government corporation operated by the Department of Housing and Urban Development that provides primary mortgages through bond issuances. a very safe security that pays principal and interest monthly
Goverment National Mortgage Association (Ginnie Mae GNMA)
Name the two primary rating organizations for debt securities
1. Standard & Poor's
2. Moody's
best rating AAA orAaa
Name a commodity that is subject to supply and demand
The cost of money is determined by supply and demand and the measurement of supply and demand is called
Prime rate
Interest on municipal bonds are tax exempt on which tax
federal income tax
What is the equation for taxable-equivalent yield?
tax-free yield divided by (100% minus the tax bracket)
The annual interest rate payable on a bond, specified in the indenture and printed on the face of the certificate itselt
coupon rate
What is the equation for return on investment
return divided by investment
(current market price)
DBL 10s 09 means what?
DBl name of issuer
10 is the nominal yield
2 pays interest semi-annual
09 matures in 2009
When a bond is selling at a price above par we say it is selling at what?
When a bond is selling at a price below par we say it is selling at what?
Two critical statements to remember about what bonds sell for
1. if you pay more, you get less
2. if you pay less, you get more
What is the most important relationship between interest rates and bond prices?
They move in opposite directions.
The current market price of bonds is determined by what?
supply and demand
What is the name for bond issues with only one maturity date?
Term bonds
What is the name for bond issued that have multiple maturity dates?
Serial bonds
A bond feature , by which all or part of an issue may be redeemed by the corporation before maturity and under certain specified conditions.
What is the term used to describe refinancing in the bond business, through callable feature?
What is setup so that Callable bonds allow the issuer to allocate a portion of its earnings to a special escrow account in order to keep retiring a portion of its debt on a regular basis
sinking fund
Convertible bonds are only issued by who?
Bonds that can be converted or exchanged for the company's common stock is called
convertible bonds
Most convertibles are what kind of debt
How do corporations raise capital?
Issuing debt and equity securities
How does the goverment raise capital?
Borrowing through bond issues
How do Treasury notes and Treasury bonds that are in their last year prior to maturity treated?
They trade like any security with one year or less
What are short-term IOUs issued by corporations called?
What is the denomination?
Commerical Paper
What is used to finance import/export businesses and used extensively in international trade?
Bankers Acceptance
A bankers acceptance is a negotiable instrument that is backed by what three things:
1. American Importers pledge
to pay
2. goods being imported
3. guarantee of the accepting bank
A debt obligation backed by a pool of mortgages and usually have a passed through feature is called
mortgage backed securities
This entity is comprised of qualified conventional residential mortgages on single-family homes and are not backed by the goverment
Federal Home Mortgage Corporation (Freddie Mac)
Which has the lowest yield
Freddie Mac, Ginnie Mae or Fannie Mae
Ginnie Mae, backed by the Goverment
Bonds that are collateralized by mortgages or by mortgage backed securities and have a set date to mature are called
collateralized mortgage obligations (CMO)
An entity that holds a fixed pool of mortgages and issues multiple classes of intersts in itself to investors is called
REal Estate Mortgage Investment Conduits (REMIC)
What are the two classes of interest for Real Estate Mortgage Investment Conduits?
regular interest
residual interest
Interest in the REMIC are fixed and entitles the holder to a specified principal amount is called
regular interest
whether issued as stock or debt payments treated as interest income
What type of interest does regular interest in a REMIC receive?
Fixed (similar to preferred stock)
What type of interest does residual interest in a REMIC receive?
variable ( similar to common stock) all income is considered income
Interest in a REMIC may be issued in the form of what two ways?
stocks or debt
name for firms which sell new securities to the general public
investment bankers
a broker/dealer organization that provides a service to industry through counseling, and ,underwriting of securties
investment banker also known as underwriter
Two types of underwriting a sale for securities is called
firm commitment
best efforts
An agreement stating the investment banker agrees to supply the corporation with a specified amount of money for the securities with the intention of reselling them
firm commitment
The investment banker makes tries to sell the securities acting on behalf of the issuer
best effort
The first time a corporation is making a public offering this is called
Initial public offering(IPO)
Anytime authorized, but unissed stock is offered by the is raising additional equity capital this is
public offering
the selling of a large block of outstanding stock that was previously issued and is now being re-sold by investors is called
secondary offering
When a corporation makes a public offering of its stock, it is bound by what provision?
What is its nickname?
Securities Act of 1933
Act of Full Disclosure
Before a security can be offered to the public a full disclosure of all pertinent acts must be filed with the SEC, name of document filed?
Registration statment
From the filing date of the registration statement how many days until the effective date? What is this period called?
20 days
Cooling-off period
What is the purpose of the registration statement?
For the SEC to review info and make sure full disclosure has been made. SEC does not approve the issue.
Who submits the registration statement?
the investment banking firm which is acting as an advisor to the corporation
A preliminary prospectus for securities to be offered to publicly by a corp. or underwriter before the effective date of the registration statement called
Red Herring
What two items are missing from the red herring?
1. public offering price
2. effective date of the issue
If a prospect who has reviewed the red herring is interested in purchasing the security he will give you what?
indication of interest, no order can be accepted before effective date of issue
Close to the end of the cooling-off period, a meeting is held between the underwriter and corp. to discuss any amendments necessary to complete the registration statement , what is the name of the meeting?
due Diligence meeting
Once the effective date of issue has been reached and sales may be executed name the prospectus that is given.
Final or statutory prospectus
What is the name for a group of investment bankers, that are collectively underwriting a large dollar security as a firm commitment, so this distributes the risk.
Name of an ad that contains only the key facts to the issue, name, issuer, # of shares, price, name of snydicate
tombstone ad
Broker/dealers who contract to act as selling agents for underwriters and who are compensated by a portion of the selling concessions on newly issued stocks, they assume no financial liability to the issuer, this group is called
selling group
Name of one who buys or sells securities for the account and risk of someone else and charges a commission for services rendered is called
agent or broker
An individual or firm in the securities business acting as a principal rather than as an agent. They earn their profit from mark-up and mark-down, never commission is called
in which of the underwriting types does the investment banking firm act as an agent?
Best efforts underwriting
In which of the underwriting types does the investment banking firm act as a principal?
firm commitment
SEcurities that are not required to be registered with the SEC prior to sale are called______
exempt securities
1. any security issued by federal, state or local goverment
2. commerical paper with maturity less than 9 months
3. Private placements (less that 35 public investors
4. Intra-state offerings
One in a position of trust is called
Regulations of investments made by fiduciaries are regulated by who?
State laws
First written in 1992, it deals with investments made by fiduciaries and holds them to standards and good judgements when investing money for others, also investments in modern portfolio theory, this is called
Prudent investor rule
The process of how securities are issued to the public is known as
Primary market refers to the issuing of what
new securities
The resale of outstanding securities is known as
secondary market
the occurence everyday on the exchange and in the OTC market is known as the
secondary market
The two market places for secondary trading are known as
What protects the investor who purchases in the secondary market?
Securities Exchange Act of 1934
What created the Securities and Exchange Commission?
Securities Exchange Act of 19634
What provides liquidity to individuals who acquired securities in the primary market?
Secondary market
What is a private assocition of brokers that provides a central meeting place for its member brokers?
stock exchange
What determines the price of particular stock will sell at?
This is determined at a free and open_______
supply and demand
What are the two National stock exchanges called?
New York Stock Exchange(NYSE)
American Stock Exchange (AMEX)
Beside the two National stock exchanges there are several other stock exchanges referred to as
regional stock exchange
Stocks that are traded on an exchange are referred to as
listed stock
The person who conducts an auction is called
Securities are bought and sold in two general types of markets what are they called
stock exchange
Companies which have applied and qualified for trading can be bought and sold on this market
stock exchange
This market handles the buying and selling of securities that have not applied and qualified for trading
There is no central marketplace, or trading floor for these over the counter securities and it is composed of thousands of brokers and dealer making security transactions it is called
negotiated market
What is the largest market in term of number of securities issues traded?
Name 5 types of securities traded over-the-counter
1. goverment bonds
2. municipal bonds
3. mutual funds
4. new issues(primary Dist)
5. variable annuities
An NASD broker/dealer ready to provide continuing bids and offers for a given security in the secondary market is called
market maker
Name the voluntary association of broker/dealers in over-the-counter securities
National Association of Securities Dealers
An electronic data terminal device furnishing subscribers with instant indentification of market-makers and current quotations is called
Nasdaq--Nation Association of Securities Dealers Automated Quotations
The prices shown on the NASDAQ in which the market maker is ready to do business with another NASD member firm
firm quote
This service in available on the representative's desk top and provides price information only on the hightest bid and lowest offer(subject quote), nothing else is given.
Nasdaq level 1
This service provides a large CRT(Television screen) tht shows firm bid and ask right now and size of their market, could get firm quote
Nasdaq level2
This service allow registered market makers to enter bid and ask price (quotes)and report their trades.
Nasdaq level 3
How much is a round lot?
1oo shares
The failure to honor a firm quote is known as
Backing away
A trade of a listed stock that occurs over-the-counter is known as
Nasdaq Intermarket
A private transaction made directly between large institutional investors, such as banks, mutual funds, and insurance companies without the use of a securities firm is called
Fourth Market
Can a securities firm act as a broker and a dealer in the same transaction?
A Securities firm maintaining an inventory in a particular security would be acting as a
The most frequently used delivery contract that calls for delivery on the third business day after the trade.
Regular way
One exception to the 3 day Regular Way delivery is U.S. Goverment securities that must be delivered when
next business after the trade
Name a non-regular way delivery is which the delivery is made at the office of the purchaser on the same day as the trade
cash trade
Name four dates in chronological sequence regarding dividends
1. declaration date
2. ex-dividend date
3. record date
4. payment date
The day the Board of directors publicly announce a divideng is called
Declaration date
This is the day on and after which the buyer of a security is not entitled to a previously declared dividend ,usually the 2nd business day priort to the record date is called
ex-dividend date
This is the day the corporation (usually the transfer agent) makes a list of stockholders of record this is called
record date
This is the actual day payment of the dividend is made
payment date
The standard unit of trading in stock is
Taxes on money you make is commonly called
income taxes
Higher levels of taxable income are taxed at progressively higher tax rates this is called
tax brackets
Name two ways one makes money from investing in securities
1. dividends and interest
2. profit from sale of investments
Dividends and interest received from investments is called
Investment income
Profit on the sale of investments is called
capital gains
all interest received (other thatn municipal securities) are taxed as
ordinary income
dividends received from common stock are taxed as
long term capital gains
When the value of your shares rise this is called appreciation is it taxable?
No, the rise in value is paper profit until you sell it
When you sell shares for a profit you now havea
realized capital gains
The IRS has two separate categories of capital gains and losses, they are called
1. long-term capital gains
2. short-term capital gains
What determines which category a capital gains qualifies for?
holding period
If securities are sold which have been held for a period of 12 months or less, the profit realized is
short-term capital gains
If securities sold at a profit were held one day and 12 months or longer that profit is deemed
Long-term capital gains
Short-term gains are taxed at
ordinary tax bracket
What is the maximum write-off for capital losses per year?
$3,000 with a carry over against gains, if no gains then deducted from orindary income
The date of acquisition to determine long-term status is
trade date not settlement date
What is the maximum capital gains tax
The rules that says an investor may not earn a tax benefit from selling a security at a loss if he reaquires that secuirty or one identical to it within a 30 day period before or after the sale is called
Wash Sale Rule
The IRS allows a gift tax exclusion per person per year in the amount of
The recipent of a tax free gift is called
Does he have a tax liability for the gift
How is interest from U.S. Goverment bonds treated for tax purposes
Interest is exempt for state income tax not federal
Interest received on state or municipal security are subject to what taxes?
Interest is exempt for federal but must be paid on state
The entire process of estimating return and risk for individual securities is known as
securities analysis
With stocks the two basic types of risk are known as
market risk
financial risk
The risk that the business in which you have invested your money does poorly or goes bankrupt is called
business or financil risk
name the three risks involved in the purchase of bonds
1. credit risk
2. money risk (interest rate)
3. purchasing power risk (inflation risk)
What is the name for an issued that makes money basically in bad and good times?
defensive issue
The uncertainty that an investor made need to liquidate that stock at a time that would not be advantageous , such as taking a loss because the price has decreased is called
risk of liquidating the investment
A risk in that when the investor is willing to sell the security there may not be a buyer is referred to as
Marketability or redeemability
What securities have almost no marketability risk?
Which ones have no marketability risk?
publicly trade stock and bonds
mutual funds have no risk
An investor who is looking for a portfolio whose objectives are maximum income , liquidity and safety of principal may choose what?
money market
How does the Federal Reserve respond to economic cycles?
By buying and selling Treasury securities and/or changing interest rates
to increase the money supply(inflationary policy) the Federal REserve would do what?
Buy Treasury securities, putting more money into circulation
The interest rate member banks pay to borrow from the Federal REserve is called
discount rate
A company that makes investments on behalf of individuals who share common financial goals is called
mutual funds is an investment company
What conducts an ongoing or continouse offering of new shares?
Mutual funds
What do you call a mutual fund whose stated objective is long-term growth of capital?
growth fund
What do you call a mutual fund whose stated objective is to provide a higher that average current investment return?
income fund
A fund which seed to achieve their objectives through concentrating their investments within a single industry are called
specialized funds
Which fund is suitable for the investor who wants to preserve his origianl principal while at the same time making modest income and gain is called
Which fund would an investor use whose main objective to tax-exempt income called
municipal bond funds
A corporation whose primary business is to sell its advisory services and professional expertise to mutual funds is called
money managers or mangement company
In a mutual fund who handles bookkeeping, periodic reports, and other clerical functions is called
A principal underwriter is also known as
Distributor or sponsor
How often must a 12b-1 fee be reviewed and who is it approved by?
40% vote of outside directors
How is net worth figured?
subtracting toatl liabilities from total assets
How is working capital calculated?
subtracting current liabilities from current assets

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