Securities and Stock Overview

A set of flashcards summarizing key concepts regarding securities, types of stock, and their rights and benefits.

What is a Security?

An intangible financial asset that may be bought, sold, or gifted between persons.

Howey Test Criteria for a Security

1. Investment of money 2. Common Enterprise 3. Expectation of Profit 4. Efforts of a Third Party

Examples of Securities

Stocks, Bonds, Options, Mutual Funds, Jumbo CDs, Depository Receipts, Units in an Investment, Variable Life & Variable Annuities.

What are Cryptocurrencies according to the SEC?

Considered commodities; meet 3/4 qualifications of the Howey Test but lack 3rd party management.

Common Stock Definition

Represents ownership in the company and is issued by public corporations. Shareholders vote to elect the Board of Directors.

Authorized Stock

Shares that the Board of Directors decides to declare in the Corporate Charter. Not all authorized shares are issued.

Outstanding Stock

All stock that has been issued and is currently owned by investors.

Treasury Stock

Issued stock repurchased by the company, having no voting rights and no dividends.

Market Capitalization Formula

Market Capitalization = (number of outstanding shares) x (Current Market Value per Share).

Penny Stocks Definition

Unlisted securities trading at less than $5 per share; considered highly speculative.

Types of Dividends

1. Cash Dividends: paid quarterly. 2. Stock Dividends: paid in stock, not immediately taxable. 3. Product Dividends: rare bonuses in product form.

Dividend Rights of Common Stockholders

Entitlement to share profits, typically issued quarterly, at the discretion of the Board of Directors.

Pre-emptive Rights

Allows shareholders to maintain proportional ownership when new shares are issued; typically offered at a discount.

Risks of Owning Common Stock

1. Market Value Risk. 2. Business Risk. 3. Decreased or No Income. 4. Low Priority at Dissolution.

Benefits of Owning Common Stock

Growth potential, current income from dividends, limited liability, voting rights, and information access.

Preferred Stock Definition

Equity security with a fixed dividend; often acts like a debt security.

Dividend Rights of Preferred Stockholders

Receive fixed dividends before common shareholders; not guaranteed.

Convertible Preferred Stock

Allows holders to convert their preferred shares into common stock at a specified rate.

Cumulative Preferred Stock

Entitles holders to missed dividend payments before common shareholders receive any dividends.