Series 7

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Author:
mhunt09
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203607
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Series 7
Updated:
2013-03-05 19:31:03
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Vocabulary terms for Series 7 test
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  1. Balance Sheet
    summarizes the company's assets, liablilities and equity
  2. assets
    what the company owns
  3. liabilities
    what the company owes
  4. equity
    the excess of the value of assets over the value of liability
  5. Net worth
    assets-liabilities= Net worth
  6. Common Stock
    a security that represents ownership in a corporation
  7. Authorized stock
    a specific number of shares that a company has authorized to issue or sell.
  8. Issued stock
    stock that has been authorized and distributed to investors
  9. outstanding stock
    shares that a company has issued but not repurchased.  Investor owned
  10. Treasury stock
    • stock that a corporation has issued and repurchased from the public.
    • why?
    • -increase earnings per share;
    • -have an inventory of stock available
    • -use for future acquisitions
  11. par value
    arbitrary value the company gives the stock
  12. book value
    value a common stockholder could expect to receive per share
  13. Market value
    the price investors must pay to buy stock
  14. voting rights
    rights given to common stockholders to exercise control of a corporation
  15. statutory voting
    allows stockholders to cast one vote per share on a ballot
  16. cumulative voting
    allows stockholders to allocate their total votes in any manner they choose
  17. nonvoting common stock
    stock sold for a company to raise capitol while maintaining management
  18. Limited Liability
    protects stockholders from having to pay a corporation's debt in bankruptcy
  19. Forward splits
    increases the number of shares and reduces the price without affecting the total market value of shares outstanding
  20. reverse split
    decreases the number of shares and increases the price per share
  21. Long position
    customers who purchase stock and sell it (normal)
  22. short
    customers who borrow stock from a stock lender with intent to sell it when the stock declines in price
  23. preferred stock
    represents ownership in the corporation but doesn't not normally offer the appreciation potential of common stock
  24. Straight preferred
    No special features beyond dividend payments.  If the corporation misses dividend payments are not a guarantee to be paid.
  25. cumulative preferred
    these stockholders receive their current dividends plus the total accumulated dividends before any dividends may be distributed to common stock holders.
  26. Convertible preferred
    preferred stock that can be converted to common stock
  27. Participating preferred
    offers owners a share of corporate profits in addition to the fixed dividends once all other things are paid off
  28. 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.
  29. Dividends
    distributions of a company's profits to its stockholders
  30. Cash dividends
    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.
  31. Stock dividends
    • Dividends given in stock as apposed to cash. 
    • common with growth companies
    • Stock market price declines, however the company's total market value stays
  32. Current Yield (Dividend Yield)
    The annual dividend divided by the current market value of the stock
  33. Stock certificate
    indicates the shares of a corporation a person owns.
  34. A Committee on Uniform Securities Identification Procedures number (CUSIP)
    Identification number for securities
  35. Negotiability
    • 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.
  36. 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.
  37. Transfer agent
    • ensures its in the correct name
    • cancels old and issues new certificates
    • maintains records of ownership
    • handles problems with lost or stolen certificates
  38. Registarar
    makes sure that a corperation does not have more outstanding shares than are authorized
  39. preemptive right
    stockholders may maintain proportionate ownership by purchasing newly issued shares before they are offered to the public
  40. Points
    a stock market's price quoted in dollars
  41. Price to earnings ratio (PE ratio)
    the ratio of the stock's current price to its most recent 12 months earnings per share
  42. Number of Shares
    reported in lots of 100.  So if the paper says 120, its 120,000
  43. ex-dividend
    an x before the sales volume indicates that the buyer will not recieve the next dividend check
  44. Over the counter stocks
    • The Nasdaq global select market
    • The Nasdaq global market
    • The Nasdaq capital market
  45. The Nasdaq Global Select market
    • Newest
    • Listing standards are among the highest
    • anticipated to compete with the NYSE
  46. The Nasdaq Global market
    • Largest
    • High interest and appeal
  47. ex-date
    a customer must purchase the stock three business days before the record date
  48. due bill
    a printed statment showing a buyer's right to a dividend.
  49. rights offering
    allows stockholders to purchase common stock bellow the current market price
  50. rights value
    • (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)
  51. cum rights
    • rights given before the ex-date
    • N+1
  52. currency risk
    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.
  53. Real estate investment trusts (REITs)
    a company that manages a portfolio of real estate investments in order to earn profits for shareholders.
  54. American Depositary receipts (ADR)
    • facilitates the trading of foreign stocks in US markets.
    • no preemptive rights
    • dividends in dollars
  55. Custodian bank
    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.
  56. equity REITs
    trusts that own property
  57. mortgage REITs
    trusts that own mortgages
  58. hybrid REITs
    trusts that own both mortgages and property
  59. Warrant
    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
  60. bondholders
    • no ownership  or voice.
    • receive preferential treatment over stockholders
  61. Funded Debt
    Corporate bonds with maturities of five years or more
  62. The nations largest borrower
    • The federal government
    • most secure credit risk
  63. Treasury bills
    6 months or less
  64. Treasury notes
    2-10 year maturitites
  65. Municipal securities
    debts of state and local government agencies
  66. coupon
    interest rate for a bond
  67. 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
  68. Three maturties
    term, serial, balloon
  69. Term maturity
    it all matures at once
  70. serial maturity
    schedules portions of the principal to mature at intervals over a period of years until the entire valance has been repaid
  71. Balloon maturity
    combination of term and serial maturity
  72. bearer bonds
    • no longer used
    • no identification required to receive payment
  73. Book entry bond owners
    no certificate. Transfer agent keeps records
  74. Fully registered
    • registered as principal and interest, transfer agent keeps records.  
    • most common
  75. Bond denominations
    registered bonds are available in denominations of $1000 up to $100,000 per certificate
  76. par value
    the dollar amount of the investor's loan to the issuer.  It is the amount paid in full when the bond matures.
  77. Two factors that effect a bond's market price
    • issuer's financial stability
    • overall trends in interest rates
  78. Basis points
    100 basis points = $10 = 1%
  79. 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
  80. S&P ratings vs Moody's ratings
    • S&P (AAA, AA, A, BBB etc.)
    • Moody's (Aaa, Aa, A, Baa etc)
  81. US government securities
    highest degree of safety
  82. 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
  83. Municipal issues
    General obligation bond's (GO's)
  84. Liquidity
    • the ease at which a bond or any other security can be sold
    • size
    • quality
    • rating
    • maturity
    • call features
    • coupon rate and current market value
    • issuer
    • existence of a sinking fund
  85. sinking fund
    an account established by an issuer that holds money for paying back bondholders
  86. debt service
    schedule of interest and principal payment due on a bond issue
  87. bond redemption
    when a bond is repaid, usually on it maturity date
  88. call feature
    • 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
  89. call premium
    a price usually higher than the par to have a call feature included in the issue
  90. call protection
    noncallable period of five or ten years
  91. Call premium
    call price-par
  92. refunding
    practice of raising money to call a bond
  93. tender offer
    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
  94. Puttable bonds
    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.
  95. Bond yield
    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.
  96. 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
  97. Yield to call (YTC)
    reflects the early redemption date and consequent acceleration of the discount gain or premium loss from the purchase price
  98. Rank yields at discount
    • YTC
    • YTM
    • CY
    • Nominal
  99. Rank Yields for Premium
    • Nominal
    • CY
    • YTM
    • YTC
  100. secured bonds
    when the issuer has identified specific assets as collateral for interest and principal payments
  101. mortgage bonds
    these have the highest priority among all claims on assets pledged as collateral.  They are only as safe as the assets that secure them.
  102. Open ended indentures
    permits the corporation to issue more bonds of the same class.  They will have the same claim on the collateral
  103. closed-end indentures
    does not permit the corporation to issue more bonds of the same class in the future
  104. 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
  105. 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.
  106. equipment trust certificates (ETCs)
    bonds and notes to finance capital equipment.
  107. unsecured bonds
    these have no specific collateral backing
  108. Debentures
    backed by the general credit of the issuer.  These are below secured bonds and above subordinated debentures
  109. Subordinated debentures
    paid last of all debt obligations including general creditors in the case of liquidation
  110. Liquidation hierachy
    • unpaid wages
    • IRS taxes
    • secured debt (bonds and mortgages)
    • unsecured liabilities (debentures)
    • preferred stockholders
    • common stockholders
  111. 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.
  112. The trustee
    appointed by a corporation, usually a commercial bank or trust company, for its bonds
  113. Trust indenture
    a legal contract between the bond issuer and a trustee representing bondholders.
  114. closed and open end covenants
    closed end have senior claim on assets.  open end have equal rights
  115. 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.

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