Flashcards
Series 7 - Equities
Cards in this deck (13)
- 1Jim Nash FlashcardsSeries 7
- 2Equity Board of DirectorsThe right to vote either through:
Statutory - Must split evenly
Cumulative - Any way you want (Small investor benefits)
Note: An investor with 100 shares has to vote for 5 directors, they would have 500 votes to split any way he chooses among 5 directors - 3Equity: Transfer of ownershipTransfer Agent - determines good delivery
Registrar - Verify the amount of shares. Makes sure corporations don't have more stock outstanding than it has been authorized - 4Equity: Dividends (Only declared by board)Cash dividend - treated as ordinary income
Stock dividends - stock dividend is not taxable (calculate new cost basis)
Example: Long 100 Shares @ $50. 10% stock dividend would adjust cost basis $5000/110 shares = $45.45
110 shares x $45.45 = $5000
Stock Splits: Find cost basis and multiply by new # of shares - 5Equity: Cash DividendsOrder of cash dividends:
1. Declaration date (BOD)
2. Ex Date (FINRA - OTC | NYSE - Exchange) - 2 days business days before record date
3. Record Date (BOD) - Dividend entitled if owned on record date.
4. Payable Date (BOD)
Cash Settlement - Same Day
Regular Way settlement - T+3 - 6Suitability Notes - EquitySeeing that the first day you can be paid w/o dividend is the ex-date. Someone may want to wait until this date in order to pay less tax.
- 7Equity: RightsPreemptive right/stock rights:
- right to maintain percentage ownership
-one right per share owned
-short term (1 month) up to the ex-rights date set by issuer
- right to exercise price below market price
Owner of rights may:
-Exercise (treat as a contract)
- Sell (treat as a security)
- Allow to expire
Note: Custodians for a minor would exercise rights for a cheaper price or sell them - 8Equity: Warrants1. Long term (up to 5 years)
2. Privilege of exercise price above market
3. Can be attached to a bond offering. If a bond is unattractive, it could be sold with a warrant for marketability (treated as separate). Also can get lower interest rate on bonds
4. Exercise, sell, or allow to expire - 9Equity: Preferred StockGet dividends (fixed at stated rate) & liquidation proceeds BUT there are no voting rights like common stock.
Par value= $100.
Suitability: Investors looking for income
Types: Straight, Cumulative (previous years added) - 10Equity: Preferred StockPrice of preferred stock moves inversely with interest rates
Characteristics: convertible, callable, participating, adjustable rate.
Participating - Possibly higher dividend than arranged
Adjustable rate - Adjusted rate annually based in interest rates
Note: Participating and adjustable are good for inflation hedging - 11Equity: ADRsAmerican Depositary Receipts
Facilitate US citizens owning foreign shares. A foreign security in a domestic market
-holder bear foreign currency risk*
-Depositary bank is registered owner of shares
- dividends are net of foreign withholding tax*
- voting rights not passed on to holder - 12Equity: Return on InvestmentCurrent yield (current rate of return)
Example: CMV is $25, annual dividend is 1.40
Current yield = Annual Dividend/CMV
1.40/25 = 5.6% - 13Capital Gains (or losses)Short-term capital gains - 12 months or less
Long-term capital gains - holding period of more than 12 months (year and a day)