SIE FLASHCARDS

What is security?

Any financial product that you can buy, sell, or trade, usually representing some kind of value or ownership.

What are Hybrids?

A combination of equity and debt features.

What is underwriting?

The process of evaluating and taking on risk for someone else's financial activity, usually issuing securities or loans.

Who is usually the underwriter?

An investment bank.

How long does the underwriter/investment bank usually take to assess the decision?

6-9 months.

What are IPOs?

The first time a private company sells its stock to the public.

What happens before an IPO?

The company is private, meaning only founders, employees, and private investors own shares.

What are the three types of securities?

Equity, Debt, Hybrids.

What is Equity?

Ownership rights to holders.

What is Debt?

Loans repaid with periodic payments to investors.

Why do companies make IPOs?

To raise money for growth, pay off debt, or let early investors cash out.

Who usually sets/handles the IPOs?

Underwriters (investment banks) usually handle the IPO.

What two sources is a company basically owned by?

Debt & Equity.

What does WACC stand for?

Weighted Average Cost of Capital.

What is WACC?

The average rate the company has to pay to use all its money (debt + equity), weighted by how much comes from each source.

If a company wants to invest in a project, the project should earn ______ than the WACC.

More.

What are the benefits of introducing new issues?

Raise capital, Expand ownership base, Reduce reliance on debt, Public visibility.

What are the drawbacks of introducing new issues?

Dilution of ownership, Costly process, Market risk, Obligations to investors.

Why is being an underwriter competitive?

More clients and investments lead to more opportunities.

What is the payment perk of being an underwriter?

They usually take a huge portion of the IPO deal.

What are the steps for the IPO process in order?

1. The pitch; 2. Write the S-1; 3. Company tour; 4. Set final price; 5. Stock starts trading.

What is the SEC and what is their main job?

Securities and Exchange Commission; their main job is transparency.

What is the S-1 Statement?

A legal document where the company must reveal everything about its financial state.

What is a syndicate?

A group of banks that team up to share the risk of buying stock.

What are regulatory concerns?

The investigation phase to ensure everything is legal.

What is due diligence?

A systematic check of the company's risks.

Who is in charge of due diligence?

Investment Banks, Analysts & Fund Managers, and Individual Investors.

What is a quiet period?

A time when management cannot discuss the company's value or make predictions.

Why does the SEC enforce a quiet period?

To prevent biased promotions of the stock.

What is the Securities Act of 1933?

A law to ensure investors get all the facts before buying new stock.

Why was the Securities Act of 1933 passed?

After the 1929 stock market crash to protect investors.

What are the three things that the Securities Act of 1933 requires?

Registration, The Prospectus, The Big Rule.

What is the Sarbanes-Oxley Act of 2002 (SOX)?

A law to ensure honest accounting after a company goes public.

Why does the Sarbanes-Oxley Act of 2002 exist?

It was passed after scandals like Enron and WorldCom.

What are the three things that the Sarbanes-Oxley Act of 2002 requires?

CEO and CFO signatures, Internal Controls, Whistleblower Protection.

What is a security offering?

The act of a company selling its investment products to raise money.

What does FV and PV stand for?

Future value and Present value.

Why is a fixed growth rate important?

It helps assess the current assets' future value.

What is one big disadvantage of FV?

It does not account for inflation.

What are secondary offerings?

The company's resale of existing ownership.

Where does the money go in a secondary offering?

Usually to existing shareholders, not the company.

What is the major difference between initial public offering and secondary offering?

Secondary offering does NOT raise new capital for the company.

What is a non-initial public offering?

Any time a company sells securities to the public after it has already gone public.

What is the golden line about non-IPOs?

Public company raising money again, not going public.

Why would a company issue a Non-IPO?

To raise additional capital, pay down debt, or take advantage of strong market conditions.

What are dilutive offerings?

They create new shares, reducing existing ownership.

What are Non-dilutive offerings?

No new shares created; same ownership pie, different holders.

What is Rule 506(B)?

Private offering rule allowing fundraising without SEC registration.

What is Rule 506(C)?

Allows private fundraising with public advertising to accredited investors.

What is rule 504 Limited Offerings?

A way for small companies to raise up to $10 million without full SEC registration.

What is Regulation Crowdfunding Offerings?

Small companies raise money online from many investors, with limits.

What are Intrastate Offerings?

Fundraising within one state, following state rules.

What is Regulation A Offerings?

A mini-IPO for smaller companies.

What is a Mini-IPO?

A Mini-IPO allows smaller companies to sell securities to the public with simpler disclosure than a full IPO.

What are the tiers of a Mini-IPO?

Tier 1: Up to $22.2M per year; Tier 2: Up to $75M per year.

What is a Registered Public Offering?

A company sells securities to the public and must file with the SEC, providing a prospectus with full information.

What is a corporation?

A corporation is a separate legal business owned by shareholders that can raise money by selling stock and bonds.

What is the common goal of shareholders?

To increase the value of their investment.

What is the difference between a private corporation and a public corporation?

A private corporation does not sell shares to the public, while a public corporation does and must register with the SEC.

Who are common stockholders?

Common stockholders are owners of a corporation with voting rights who may receive dividends.

Why do shareholders vote?

To elect the board of directors and approve major company decisions.

How can shareholders vote?

In person at the annual meeting or by proxy.

What is a poison pill?

A strategy to discourage a hostile takeover by making the company's stock less attractive.

What is a flip-in?

A strategy allowing current shareholders to buy extra shares cheaply to make a takeover harder.

What are growth stocks?

Shares of companies expected to grow faster than the market, often without big dividends.

What are value stocks?

Shares of companies that appear cheap compared to their true worth, often with steady dividends.

What are the advantages of common stock?

Voting rights and potential high returns.

What are the disadvantages of common stock?

Dividends aren't guaranteed and they are last to be paid if the company fails.

What is preferred stock?

A type of stock that pays fixed dividends and has priority over common stock in payments.

Why do some prefer preferred stock over common stock?

Preferred stock offers more stable dividends and higher priority in payment.

What is prior preferred stock?

Preferred stock where missed dividends must be paid before other preferred or common shareholders.

What is preference preferred stock?

Another name for preferred stock that gives priority for dividends and asset distribution.

What is perpetual preferred stock?

Preferred stock with no maturity date that pays dividends indefinitely.

What is convertible preferred stock?

Preferred stock that can be exchanged for a set number of common shares.

What is cumulative preferred stock?

Preferred stock where missed dividends accumulate and must be paid before common dividends.

What is non-cumulative preferred stock?

Preferred stock where missed dividends are not paid later.

What is participating preferred stock?

Preferred stock that allows extra dividends if the company performs well.

What are ETFs?

Exchange-traded funds that hold various assets and trade on an exchange.

What are ETNs?

Exchange-traded notes that track an index or asset without owning the assets.

What are REITs?

Real estate investment trusts that own or finance income-producing real estate.

What are ADRs?

American Depositary Receipts that allow U.S. investors to buy foreign shares.

What are MLPs?

Master limited partnerships that combine tax benefits of a partnership with trading on an exchange.

What are debt securities?

Investments where you loan money and receive interest back.

What are most debt securities?

Bonds.

Who usually issues bonds?

Government entities or corporations.

What types of bonds are there?

Fixed-rate and zero-coupon bonds.

Why do people invest in debt securities?

To earn regular interest income and get their original money back with less risk.

What are the features of a debt security?

Issue date, Issue price, Coupon rate, and maturity date.

What is an issue date?

The date when a bond is first issued.

What is the issue price?

The price at which investors purchase the bond when issued.

What is the maturity date?

The date when the issuer must pay back the principal.

What is the coupon rate?

The interest rate on the borrowed amount.

What is yield to maturity?

The total return earned if a bond is held until maturity.

What is the formula for yield to maturity?

YTM = (n square root Face Value / Present Value) - 1.

What are treasury bonds?

Long-term U.S. government bonds with maturities of 10, 20, or 30 years.

What are international government bonds?

Bonds issued by foreign governments.

What are municipal bonds?

Bonds issued by local governments to fund projects, often tax-free.

What are agency bonds?

Bonds issued by U.S. government agencies that are generally safe but not fully backed.

What are green bonds?

Bonds issued to fund environmentally friendly projects.

What is greenwashing?

Pretending to be environmentally friendly without making real efforts.