SIE

Authorized Stock

The approved number of shares a corporation can sell when it decides to offer stock to the public.

Issued Stock

The shares of authorized stock that have been sold to the public.

Treasury Stock

Treasury stock is authorized stock that was previously sold to the public but was repurchased by the issuer. Because it is no longer outstanding, the company’s share count will fall, and the shares no longer receive dividends or have voting rights. Treasury shares may be held by the company, reissued to the public, or cancelled.

Warrants As Equity Securities

Warrants are considered equity securities (not debt securities) because if the warrant is exercised, the investor will receive shares in the underlying company. Importantly, warrants do not make interest payments to investors.

Blue Chip

Stocks of well-established, stable companies with a long history of steady earnings and dividends are known as blue chip stocks. Blue chip stocks typically trade on major exchanges such as the NYSE or Nasdaq.

Wilshire 5000

The Wilshire 5000 is an index which measures the value of U.S. companies with actively traded stock.

Russell Top 50

Is an index that tracks the 50 largest stocks in the Russell 3000 Universe of U.S.-based equities.

Cumulative Preferred Stock

Cumulative preferred stock allows investors to receive dividends in arrears. This means that if a dividend is skipped for cumulative preferred shareholders, they must receive both current and skipped dividend payments before any dividend payment can be made to common shareholders. This is a benefit for the investor as it entitles them to receive missed dividend payments.

Transfer Agent Versus Custodian

A transfer agent of an issuer is responsible for issuing and cancelling certificates and processing investor mailings (e.g., proxies). A custodian, on the other hand, is responsible for holding investor assets or securities for protection. A custodian may also maintain certain investor records.

Cash Dividend Taxation

Cash dividends on stock received by an investor are taxable as ordinary income and do not increase the investor’s cost basis.

Stock Dividend Taxation

Stock dividends are not taxed when received by a shareholder. However, the basis of the investor’s position is adjusted downward to reflect the new number of shares.

 Example: Assume an investor holds 100 shares of stock valued at $50 per share and receives a 10% stock dividend. The $5,000 value ($50 x 100 shares) of the total position does not change, so the investor now has 110 shares with an adjusted basis of $45.45 (calculated as $5,000 total value/110 shares).

Serial Bonds

In a serial bond issue, the outstanding bonds mature at different intervals with a portion of the issue maturing each year.

 Example: A 20-year bond with a 10-year call protection period could be called any time after year 10 through maturity.

Adjusting Premium Bonds by Amortization

Bonds purchased at a premium (> $1,000 par) must be amortized over the life of the bond. Amortization means that the cost basis will be adjusted downwards each year so that at maturity an investor’s cost basis is $1,000 par. What will amortization affect? Amortization affects a bond’s cost basis (downwards) and should the investor sell the bond prior to maturity, the profit or loss on the transaction. Amortization does not affect sale proceeds (what a purchaser is willing to pay).

 Example: When an investor purchases a bond at a premium, the cost basis will be adjusted downward towards par on a straight- line basis. This is referred to as amortization. For example, a 10- year bond bought at 110 would be adjusted by one point per year, calculated as: 10-point premium /10 years to maturity = 1 point per year.

Dated Date

The dated date is the date when interest begins to accrue on fixed income securities. The dated date is only relevant for new issuances and once regular semi-annual coupon payments begin, it is no longer relevant.

Refunding

The process of calling a bond when interest rates have fallen and issuing a new bond with a lower coupon rate is called refunding.

EMMA Website

The Electronic Municipal Market Access (EMMA) website provides updated information about the issuer, the municipal bond, and its credit rating.

Bond quotations

Bonds are quoted as a percentage of par. It is important to note that bond quotes can also include fractions, such as 1/8ths (Corporate& Municipal bonds) or 1/32nds (Government bonds) of a point. These fractions are used to represent smaller price increments.

 Example: If a bond is quoted at 98 1/8, you would convert it into a price by following the method below:

o First, convert from fraction to decimal:
o 1/8=0.125
o Next, add the decimal to the whole number: o 98 + 0.125=98.125
o Last, Multiply by 10.
o 98.125 x 10=981.25

 Use this same format for bonds quoted in 32nds.

Convertible Bond Pricing

The value of a convertible bond is based on the value of the underlying common stock since the investor can exchange the bond for the shares. The parity price is the value at which the investor is mathematically indifferent between owning the bond or converting into the underlying shares.

Non-Marketable US Government Securities

The US government issues both marketable and non-marketable debt securities. Marketable securities can be freely traded by investors and include US Treasury securities, such as Treasury bills, Treasury notes, and Treasury bonds. Non-marketable securities, for example US savings bonds, cannot be resold by investors and therefore have no secondary market.

Series I Bond

A Series I bond is a non-marketable US Treasury savings bond. It pays a combination of fixed and variable interest (linked to the rate of inflation).

New Treasury Securities

Are sold through a public auction process conducted by the Federal Reserve Board. A noncompetitive tender will ensure an individual’s order is filled.

Industrial Development Revenue Bonds

Industrial development revenue bonds are a type of taxable municipal security that is issued by a municipality on behalf of a corporation. Specifically, the municipality will issue debt to build a facility on behalf of a corporation and then lease that facility to the corporation. Because the bonds are backed by lease payments made by the corporation, the debt’s credit quality is tied to the corporation since the debt is the corporation’s responsibility.