SIE - w ma

Ch. 1 — What is common stock?

Ownership in a corporation. Shareholders may receive dividends and benefit from price appreciation, but neither is guaranteed.

Ch. 1 — What is regular-way settlement for equities?

T+1: one business day after the trade date. Weekends and market holidays do not count.

Ch. 1 — What is a cash dividend?

A cash distribution to shareholders, often paid quarterly if declared by the board.

Ch. 1 — What is a stock dividend?

A distribution of additional shares. Share count increases and per-share value adjusts proportionally; the distribution itself does not increase total investment value.

Ch. 1 — What is a stock split?

A change in share count with a proportional adjustment in price per share. The split itself does not change total investment value.

Ch. 1 — How does a 2-for-1 forward split affect a shareholder?

Shares double and price per share is approximately halved. Example: 100 shares at $40 become 200 shares at $20.

Ch. 1 — What is a reverse stock split?

A reduction in shares with a proportional increase in price. A 1-for-10 reverse split converts 100 shares at $2 into 10 shares at $20.

Ch. 1 — What are preemptive rights?

When provided, rights allowing existing shareholders to buy a proportional part of a new issuance to maintain their ownership percentage. These rights are not universal.

Ch. 1 — What is a balance sheet?

A snapshot of assets, liabilities, and shareholders' equity. Assets equal liabilities plus equity.

Ch. 1 — How is dividend yield calculated?

Annual dividends per share divided by market price per share, multiplied by 100 for a percentage.

Ch. 1 — How is the P/E ratio calculated?

Market price per share divided by earnings per share.

Ch. 1 — What are common shareholders' basic rights?

Generally voting, transferring ownership, inspecting certain records, receiving declared dividends, and a residual liquidation claim. Preemptive rights may apply.

Ch. 1 — What corporate matters may require shareholder approval?

Director elections, mergers, charter amendments, and certain stock issuances or compensation plans. Requirements depend on applicable law, company documents, and exchange rules.

Ch. 1 — What is statutory voting?

One vote per share for each director position. Votes cannot be pooled across positions; equal allocation among all candidates is not required.

Ch. 1 — What is cumulative voting?

Shares owned multiplied by director positions equals total votes. Those votes can be concentrated on one or more candidates.

Ch. 1 — What is proxy voting?

Authorizing someone else to vote your shares without attending the shareholder meeting yourself.

Ch. 1 — Do preferred shareholders rank ahead of common shareholders?

Yes, for dividends and liquidation distributions. Creditors rank ahead of both, and preferred dividends are not guaranteed.

Ch. 1 — How are fixed preferred dividends calculated?

Dividend rate multiplied by par value. For example, 6% preferred with $100 par pays $6 annually if declared.

Ch. 1 — Is preferred stock par always $100?

No. $100 is a common example, but par values vary.

Ch. 1 — Do preferred shareholders ordinarily have voting or preemptive rights?

Generally not, but an issue's terms may provide special voting or other rights.

Ch. 1 — What is cumulative preferred stock?

Missed dividends accumulate and must be paid before dividends can be paid to common shareholders.

Ch. 1 — What is callable preferred stock?

Preferred stock the issuer can redeem according to specified call dates and prices. The call price is not necessarily par.

Ch. 1 — Why do convertible preferred shares often pay lower dividends?

The conversion feature provides potential common-stock appreciation, so investors may accept a lower dividend.

Ch. 1 — What is participating preferred stock?

Preferred stock eligible for additional dividends beyond its stated dividend, according to its terms.

Ch. 1 — How is preferred stock current yield calculated?

Annual dividend divided by current market price, multiplied by 100 for a percentage.

Ch. 1 — What generally happens to fixed-rate preferred prices when rates rise?

Prices generally fall because prices and market interest rates have an inverse relationship.

Ch. 1 — What is a warrant?

A typically long-term issuer-created right to buy stock at a specified exercise price, often attached to another security as an incentive.

Ch. 1 — How long do warrants last?

Often several years, commonly five to ten years. Terms vary; some are perpetual.

Ch. 1 — How do rights differ from warrants?

Rights are typically short-term and initially priced below market. Warrants are typically long-term and initially priced above market. Market prices can later change.

Ch. 1 — What is an ADR?

An American Depositary Receipt representing an interest in foreign-company shares held through a depositary arrangement. ADRs facilitate U.S. trading in dollars.

Ch. 1 — Do ADR holders have voting and preemptive rights?

Voting participation depends on the depositary agreement; holders may provide voting instructions. Preemptive rights may be limited or unavailable.

Ch. 1 — What currency risk do ADRs have?

Exchange-rate changes can affect their value and dividends even though they trade in U.S. dollars.

Ch. 2 — What is a bond?

A debt security representing a loan to an issuer, with repayment and interest obligations determined by its terms.

Ch. 2 — What is bond par value?

The face amount due at maturity, assuming no default. Many corporate bonds have $1,000 par, but denominations vary.

Ch. 2 — What is a coupon rate?

The stated annual interest rate as a percentage of par value.

Ch. 2 — What are term bonds?

Bonds within an issue that mature on the same date.

Ch. 2 — What are zero-coupon bonds?

Bonds with no periodic interest payments, typically bought at a discount and redeemed at face value.

Ch. 2 — What are serial bonds?

Bonds issued together with portions maturing on different dates.

Ch. 2 — What are series bonds?

Bonds issued at different times with a common maturity date.

Ch. 2 — How are most corporate bonds quoted?

As a percentage of par. One point equals 1% of par, or $10 on a $1,000-par bond.

Ch. 2 — What is the bid price?

The price a dealer is willing to pay.

Ch. 2 — What is the ask price?

The price at which a dealer is willing to sell.

Ch. 2 — What is the bid-ask spread?

The difference between the ask price and bid price.

Ch. 2 — What is one basis point?

0.01 percentage point. A yield increase from 4.00% to 4.25% is 25 basis points.

Ch. 2 — How do bond prices relate to market interest rates?

Existing fixed-rate bond prices generally fall when rates rise and rise when rates fall.

Ch. 2 — What is nominal yield?

The coupon rate. For a fixed-rate bond, it does not change with market price.

Ch. 2 — What is current yield?

Annual interest divided by market price. It measures income yield, not total return.

Ch. 2 — What is yield to maturity?

The annualized yield implied by price and scheduled payments if held to maturity. Actual realized return can differ because of default or reinvestment rates.

Ch. 2 — What is the yield order for a conventional discount bond?

Nominal yield is lower than current yield, which is lower than yield to maturity.

Ch. 2 — What is the yield order for a conventional premium bond?

Nominal yield is higher than current yield, which is higher than yield to maturity.

Ch. 2 — What does a quote of 100 mean on a $1,000-par bond?

It trades at par: $1,000, before accrued interest and transaction charges.

Ch. 2 — What does a quote of 90 mean on a $1,000-par bond?

It trades at a discount: $900.

Ch. 2 — What does a quote of 110 mean on a $1,000-par bond?

It trades at a premium: $1,100.

Ch. 2 — When does a fixed-rate bond generally trade at a discount?

When its coupon is below the required market yield for comparable bonds.

Ch. 2 — What does it mean when a conventional bond's YTM equals its coupon?

It trades at par.

Ch. 3 — What is a callable bond?

A bond the issuer may redeem before maturity at specified dates and prices.

Ch. 3 — When is a bond more likely to be called?

When rates fall and the issuer can refinance more cheaply, subject to call terms.

Ch. 3 — What is a call premium?

The amount by which the call price exceeds par.

Ch. 3 — What is yield to call?

The annualized yield implied by purchase price, interest payments, call date, and call price if called on that date.

Ch. 3 — What is a puttable bond?

A bond whose holder can require the issuer to repurchase it at a specified time and price.

Ch. 3 — When might an investor exercise a bond put?

When rates rise or credit deteriorates and the put price is more attractive than the market price.

Ch. 3 — What is credit or default risk?

The risk that an issuer fails to make required interest or principal payments.

Ch. 3 — Which major agencies rate bonds?

Moody's, Standard & Poor's, and Fitch.

Ch. 3 — What do bond ratings assess?

Creditworthiness, not protection against market-price losses.

Ch. 3 — What is interest-rate risk?

The risk that changing rates affect a security's value. Rising rates generally reduce existing fixed-rate bond prices.

Ch. 3 — Which bonds generally have the greatest interest-rate sensitivity?

Longer-maturity and lower-coupon bonds, including long-term zero-coupon bonds, all else equal.

Ch. 3 — Do variable-rate bonds eliminate interest-rate risk?

No. Rate resets usually reduce sensitivity, but reset timing, caps, and other terms can leave risk.

Ch. 3 — What is liquidity risk?

The risk of being unable to sell promptly at a reasonable price.

Ch. 3 — What is purchasing-power risk?

The risk that inflation reduces the purchasing power of income and principal.

Ch. 3 — What is reinvestment risk?

The risk that interest payments or returned principal must be reinvested at lower rates.

Ch. 3 — What is prepayment risk?

The risk that borrowers repay early, returning principal sooner than expected. Falling rates often encourage mortgage refinancing.

Ch. 4 — What is a bearer bond?

A historical physical bond without registered ownership, with attached coupons used to collect interest.

Ch. 4 — What is a fully registered bond?

A bond whose ownership is recorded and whose payments are directed to the registered owner.

Ch. 4 — What is a book-entry bond?

A bond recorded electronically rather than represented by a physical certificate.

Ch. 4 — What is a bond indenture?

The contract specifying interest, maturity, collateral, covenants, and other bond terms.

Ch. 4 — What is a secured bond?

A bond backed by specified collateral. Collateral does not eliminate default or market risk.

Ch. 4 — What is a mortgage bond?

A bond secured by real estate.

Ch. 4 — What is an equipment trust certificate?

Debt secured by equipment such as aircraft or railroad equipment.

Ch. 4 — What is a collateral trust bond?

A bond secured by financial assets, such as stocks or bonds.

Ch. 4 — What is commercial paper?

Short-term unsecured corporate debt, commonly issued at a discount. Qualifying paper no longer than 270 days can use a federal registration exemption.

Ch. 4 — What is a debenture?

An unsecured corporate bond backed by the issuer's general creditworthiness.

Ch. 4 — What is a subordinated debenture?

Unsecured debt ranking below specified senior debt in liquidation.

Ch. 4 — What is an income bond?

A bond requiring interest only when sufficient earnings exist under its terms. It does not provide dependable periodic income.

Ch. 4 — What is a convertible bond?

A bond exchangeable for a specified number of common shares according to its terms.

Ch. 4 — How is conversion ratio calculated?

Par value divided by conversion price. $1,000 divided by $25 equals 40 shares.

Ch. 4 — What is conversion parity?

The point where the bond's market value equals the value of the shares obtainable through conversion.

Ch. 4 — How is parity stock price calculated?

Bond market price divided by conversion ratio.

Ch. 4 — What is the simplified corporate liquidation order?

Secured claims against collateral; priority claims; general unsecured creditors; subordinated creditors; preferred shareholders; common shareholders. Exact legal treatment varies.

Ch. 4 — Are Treasuries completely risk-free?

No. They are generally treated as free of default risk but retain interest-rate, inflation, and reinvestment risks.

Ch. 4 — How are Treasury securities issued?

In book-entry form, with electronic ownership records.

Ch. 4 — Are Treasury securities subject to Securities Act registration?

No. They are exempt from registration, but that does not mean all trading activity is unregulated.

Ch. 4 — What are Treasury bonds?

Long-term Treasury debt issued with 20- or 30-year maturities and semiannual interest.

Ch. 4 — What are Treasury notes?

Treasury debt issued with maturities from two through ten years and semiannual interest.

Ch. 4 — What are Treasury bills?

Treasury debt with maturities of one year or less, generally issued at a discount with no periodic coupon.

Ch. 4 — What are Treasury STRIPS?

Separately traded interest and principal components of eligible Treasury notes and bonds. Each component is a zero-coupon security.

Ch. 4 — What are TIPS?

Treasury Inflation-Protected Securities. Principal adjusts for inflation, and a fixed interest rate applies to adjusted principal.

Ch. 4 — What are mortgage-backed securities?

Securities supported by pools of mortgages. Payments depend on the underlying loans, and principal may return earlier than expected.

Ch. 4 — How do Ginnie Mae guarantees differ from Fannie Mae and Freddie Mac guarantees?

Ginnie Mae guarantees carry the U.S. government's full faith and credit. Fannie Mae and Freddie Mac securities do not carry the same explicit federal guarantee.

Ch. 4 — How do Fed securities purchases affect credit conditions?

Purchases generally add reserves and ease credit conditions.

Ch. 4 — How do Fed securities sales affect credit conditions?

Sales generally remove reserves and tighten credit conditions.