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summarizes the company's assets, liablilities and equity
what the company owns
what the company owes
the excess of the value of assets over the value of liability
assets-liabilities= Net worth
a security that represents ownership in a corporation
a specific number of shares that a company has authorized to issue or sell.
stock that has been authorized and distributed to investors
shares that a company has issued but not repurchased. Investor owned
- stock that a corporation has issued and repurchased from the public.
- -increase earnings per share;
- -have an inventory of stock available
- -use for future acquisitions
arbitrary value the company gives the stock
value a common stockholder could expect to receive per share
the price investors must pay to buy stock
rights given to common stockholders to exercise control of a corporation
allows stockholders to cast one vote per share on a ballot
allows stockholders to allocate their total votes in any manner they choose
nonvoting common stock
stock sold for a company to raise capitol while maintaining management
protects stockholders from having to pay a corporation's debt in bankruptcy
increases the number of shares and reduces the price without affecting the total market value of shares outstanding
decreases the number of shares and increases the price per share
customers who purchase stock and sell it (normal)
customers who borrow stock from a stock lender with intent to sell it when the stock declines in price
represents ownership in the corporation but doesn't not normally offer the appreciation potential of common stock
No special features beyond dividend payments. If the corporation misses dividend payments are not a guarantee to be paid.
these stockholders receive their current dividends plus the total accumulated dividends before any dividends may be distributed to common stock holders.
preferred stock that can be converted to common stock
offers owners a share of corporate profits in addition to the fixed dividends once all other things are paid off
callable preferred (redeemable)
allows the company to buy back at a set price after a specified date. This allows the company to replace a high dividend obligation with a lower one.
distributions of a company's profits to its stockholders
For situations where holds the stock certificate or if the shares are held in a brokerage account in the firm's name to facilitate payments and delivery. These are taxed in the year they are received.
- Dividends given in stock as apposed to cash.
- common with growth companies
- Stock market price declines, however the company's total market value stays
Current Yield (Dividend Yield)
The annual dividend divided by the current market value of the stock
indicates the shares of a corporation a person owns.
A Committee on Uniform Securities Identification Procedures number (CUSIP)
Identification number for securities
- There are few to no restrictions when selling and buying stock for a stockholder.
- To transfer just sign the back and have it guaranteed by a member firm or commercial bank.
Transferring and registering stock
by law a single person or department operating withing the same institution can't do this. Most use commercial banks and trust companies.
- ensures its in the correct name
- cancels old and issues new certificates
- maintains records of ownership
- handles problems with lost or stolen certificates
makes sure that a corperation does not have more outstanding shares than are authorized
stockholders may maintain proportionate ownership by purchasing newly issued shares before they are offered to the public
a stock market's price quoted in dollars
Price to earnings ratio (PE ratio)
the ratio of the stock's current price to its most recent 12 months earnings per share
Number of Shares
reported in lots of 100. So if the paper says 120, its 120,000
an x before the sales volume indicates that the buyer will not recieve the next dividend check
Over the counter stocks
- The Nasdaq global select market
- The Nasdaq global market
- The Nasdaq capital market
The Nasdaq Global Select market
- Listing standards are among the highest
- anticipated to compete with the NYSE
The Nasdaq Global market
- High interest and appeal
a customer must purchase the stock three business days before the record date
a printed statment showing a buyer's right to a dividend.
allows stockholders to purchase common stock bellow the current market price
- (market price -subscription price)/ (Number of rights to purchase 1 share + 1)
- the morning of the ex-date the market price usually drops by the calue of the right.
- (market price-subscription price)/ (Number of rights to purchase 1 share)
- rights given before the ex-date
the risk that an investment denominated in one currency could decline if the value of that currency declines in its exchange rate with the US dollar.
Real estate investment trusts (REITs)
a company that manages a portfolio of real estate investments in order to earn profits for shareholders.
American Depositary receipts (ADR)
- facilitates the trading of foreign stocks in US markets.
- no preemptive rights
- dividends in dollars
a bank in the issuer's country, holds the shares of foreign stock that the ADRs represent. The stock must remain on deposit as long as the ADRs are outstanding because the ADRs are the depository bank's guarantee that it holds the stock.
trusts that own property
trusts that own mortgages
trusts that own both mortgages and property
a certificate granted its owner the right to purchase securities from the issuer at a specified price (usually higher than the current market price). Unlike a right, a warrant is usually a long-term instrument, giving the investor the choice of buying shares at a later date at the exercise price
- no ownership or voice.
- receive preferential treatment over stockholders
Corporate bonds with maturities of five years or more
The nations largest borrower
- The federal government
- most secure credit risk
6 months or less
2-10 year maturitites
debts of state and local government agencies
interest rate for a bond
5M ABC J&J 15 8s of '09
- 5M- 5 $1000 bonds
- ABC- the corporation name
- J&J 15- January 15th and July 15 (semiannual interest payments)
- 8s- 8% stated interest
- '09- bond will be matured in 2009
term, serial, balloon
it all matures at once
schedules portions of the principal to mature at intervals over a period of years until the entire valance has been repaid
combination of term and serial maturity
- no longer used
- no identification required to receive payment
Book entry bond owners
no certificate. Transfer agent keeps records
- registered as principal and interest, transfer agent keeps records.
- most common
registered bonds are available in denominations of $1000 up to $100,000 per certificate
the dollar amount of the investor's loan to the issuer. It is the amount paid in full when the bond matures.
Two factors that effect a bond's market price
- issuer's financial stability
- overall trends in interest rates
100 basis points = $10 = 1%
Standard & Poor's (S&P)
- Rating service along with Moody's, that rate both corporate and municipal bonds.
- They both base their bond ratings mostly on an issuer's creditworthiness
S&P ratings vs Moody's ratings
- S&P (AAA, AA, A, BBB etc.)
- Moody's (Aaa, Aa, A, Baa etc)
US government securities
highest degree of safety
Government Agency Issues
- Second highest degree of safety
- Government National Mortgage Association
- Federal Farm Credit Banks
- Federal Home Loan Morgage Corporation
- Federal National Mortgage Association
General obligation bond's (GO's)
- the ease at which a bond or any other security can be sold
- call features
- coupon rate and current market value
- existence of a sinking fund
an account established by an issuer that holds money for paying back bondholders
schedule of interest and principal payment due on a bond issue
when a bond is repaid, usually on it maturity date
- allows the issuer to redeem a bond issue before its maturity date.
- Bonds are called when interest rates are low so that they can redeem bonds at high interest rates and replace them with lower ones
a price usually higher than the par to have a call feature included in the issue
noncallable period of five or ten years
practice of raising money to call a bond
an offer by a bond issuer to redeem callable and noncallable bonds when interest rates are down and replace them with bonds paying less interest. These offers usually come at a premium price
in return for accepting a slightly lower interest rate, and investor receives the right to put, or sell, the bond to the issuer at full face value.
the cash interest payments in relation to the bond's value. It is determined by the issuer's credit quality, prevailing interest rates, time to maturity, and call features.
yield to maturity (YTM or Basis)
reflects the annualized return of the bond if held to maturity.
- annual interest-(premium/years to maturity)
- average price of the bond
Yield to maturity bought at a discount:
- AI+(discount/Years to maturity)
- average price per bond
Yield to call (YTC)
reflects the early redemption date and consequent acceleration of the discount gain or premium loss from the purchase price
when the issuer has identified specific assets as collateral for interest and principal payments
these have the highest priority among all claims on assets pledged as collateral. They are only as safe as the assets that secure them.
Open ended indentures
permits the corporation to issue more bonds of the same class. They will have the same claim on the collateral
does not permit the corporation to issue more bonds of the same class in the future
Prior Lien Bonds
Companies in trouble will issue mortgage bonds that take precedence over first-mortgage bonds. In order to issue these bonds they must first have the consent of the first-mortgage bondholders and that is unlikely
collateral trust bonds
issued by corporations that own securities of other companies as investments. A corporation issues bonds secured by a pledge of those securities as collateral.
equipment trust certificates (ETCs)
bonds and notes to finance capital equipment.
these have no specific collateral backing
backed by the general credit of the issuer. These are below secured bonds and above subordinated debentures
paid last of all debt obligations including general creditors in the case of liquidation
- unpaid wages
- IRS taxes
- secured debt (bonds and mortgages)
- unsecured liabilities (debentures)
- preferred stockholders
- common stockholders
Zero coupon bonds
an issuer's debt obligations that do not make regular interest payments These are purchased at deep discounted prices and the full face value at maturity is the return.
appointed by a corporation, usually a commercial bank or trust company, for its bonds
a legal contract between the bond issuer and a trustee representing bondholders.
closed and open end covenants
closed end have senior claim on assets. open end have equal rights
Treasury bills (T Bills)
short term obligations issued at a discount from par. Rather than making regular cash interest payments, bills trade at a discount from par value.