Test 1 Flashcards

Gambler

High risk, high reward. People who love to take risks in winning big. Makes decisions on hunches, rather than analysis.

Speculator

Medium risk, medium reward. These people will research a little, but they are trying to beat the markets and take advantage of short term price movements.

Long Term Investor

Low risk, low reward. Focus on the future by managing risk through a diversified portfolio and focus on steady growth.

Liquidity

How quickly an asset can be converted into cash without affecting its price.

Market Risk

Losses due to fluctuations in prices.

Credit Risk

The chance a borrower defaults on a loan.

Liquidity Risk

The difficulty of selling an asset quickly enough without loss.

What are non-financial assets?

Things like collectables or real estate.

What are financial assets?

Savings accounts, CD’s, and loans

What are marketable assets?

Publicly traded assets, including debt investments like bonds and equity investments like stocks.

Sole Proprietorship

Unincorporated business with one owner. Owner keeps all profits but is fully liable for anything and pays personal income tax.

General Partnership

Business made up of 2+ partners who all agree to share assets, profits, and liabilities. All partners are liable for each other, and business dissolves after death.

Corporation

Legal entity that is separate and distinct from its owners. Low liability, double taxed, large capital.

Limited Liability Company (LLC)

Corporation structure that protects its owners from being personally pursued for repayment of debt/liabilities. Hybrid entity between corporation and partnership.

Limited Partnership (LP)

Business owned by two or more parties. One general partner that manages business and fully liable, limited partners are investors with no control.

Business Trust (TR)

A legal entity that allows a trustee to manage a business for the benefit of its beneficiaries. Lasts a persons’ life + 21 yrs.

Par Value Stock

Minimum face value set by a company (lower than market price)

No Par Value Stock

No pre-set minimum value, markets set the price.

Authorized stocks

Max shares a business is allowed to issue

Issued Stock

Shares that have been officially sold to investors.

Outstanding Stock

Shares they are being held by investors, after purchase.

Treasury Stock

Shares the company buys back.

Common Stock

Shareholders have voting rights, receive variable dividends

Preferred stock

Shareholders don’t have voting rights but hold a higher importance on liquidity payout, they also receive fixed dividends.

Warrant

Gives you the right to buy or sell a security at a stated, pre-determined price (strike price), used as a sweetener.

Securities Act of 1933

Regulates newly issued securities in the primary market.

What’s the purpose of the 1933 act?

To inform investors to make educated judgments about whether to purchase a company's securities.

Prospectos

A summary of the detailed registration statement needed to register a security under the 1933 act.

Registration statement

Discloses information about the company like management, liabilities, risk, etc.

Seasoned Issuer

Company has history of reporting (S3)

Non Seasoned Issuer

New and less established company (S1)

Who is exempt from the securities act of 1933?

Securities issued by the government, non-profits, and financial institutions

Regulation A

Considered a “Mini IPO”, which allows smaller companies to raise a limited amount of capital with reduced disclosure requirements.

Regulation D

Both a set of rules for securities offerings and reserve requirements for depository institutions. Allows companies to shell sales without registration.

Rule 504 under REG-D

Exempts some companies from registering securities sales up to $10 million in a 12-month period

Rule 147

Help small businesses raise money locally and finance their operations

Securities Act of 1934

Regulation of a security already trading in the market. Makes sure the information given by companies is correct and accurate.

Short Swing Profit Rules “Section 16B”

Prevents insiders of a company from making short term profits from a company stock within the first 6 months.

Antifraud provision 10(b)

prohibiting manipulative and deceptive practices in securities trading, it is a general type of provision

Antifraud provision 10(b)-5

Tells us what security fraud is, and insider trading, market manipulation and no disclosures all fraud.

Registration provision - section 12

Requires companies with $10 million+ in assets and 2,000+ shareholders (or 500+ unaccredited shareholders) to register their securities with the SEC.

Proxy Rule - section 14(a)

Regulates proxy solicitations to prevent misleading information in shareholder voting

Takeover rules

Requires disclosure when an individual or group acquires more than 5% of a company’s shares.

Tender offer rules

bidders must provide equal treatment to all shareholders

Going private rules - rule 13e-3

Governs transactions where public companies become private. Needs to be detailed disclosure with fairness. This protects a minority of shareholders from being forced out.

The SEC is supposed to

• investigate

• suspend

• sanciton

Foreign corrupt practice act (FCPA)

Prohibits bribery by corporations and investors. They control anti bribery and keep books and records.