SIE Exam Prep Unit 1 (Kaplan Financial)

Common Stock

is a type of equity security that represents ownership in a corporation. It is the most basic form of ownership and typically grants shareholders voting rights on company matters, such as electing the board of directors. Common stockholders also have the potential to earn dividends, which are distributions of the company's profits, and benefit from capital appreciation if the stock price increases.

Preferred Stock

is a type of equity security that represents ownership in a corporation, but it has features of both stocks and bonds. It typically does not offer voting rights, but it does offer a fixed dividend payment, which is paid out before dividends to common stockholders.

Dividends

are distributions of a company's profits to shareholders, typically paid out in cash or additional shares of stock. They are often issued on a regular schedule (typically quarterly). Dividends vary depending on profits and are never guaranteed.

Capital Appreciation

is an increase in the value of an investment over time, such as when a stock's price rises. It is one of the primary ways investors can profit from owning stocks or other assets.

Capital

is money used to grow a business. The most common sources of capital are investors and banks.

Capitalization

is the size of a company as measured by market value. This value may be found by multiplying the number of shares in the market (called outstanding shares) times the price per share. The largest companies, often with market capitalization over $10 billion, are called large-cap. (Yes, that's billion, with a "B".) You may see other terms for smaller companies like mid-cap, small-cap, and even micro-cap.

Principal (Face Amount)

It is the amount that was borrowed (what the issuer sold the bond for) and represents the amount that must be paid off at the end of the term.

Maturity

is the date when the principal must be paid off.

Interest

is the amount of money the borrower pays the investor. It represents the cost of borrowing the money.

Why does the Federal Government (Govies) sell debt?

The Federal Government and its agencies sell debt to fund government operations.

Municipalities

governments below the federal government, like states, counties, and cities. Like the federal government, these governments issue debt to raise capital for operations and to build big projects, like bridges and dams.

Corporations

sell bonds and other types of debt securities to raise capital for growth and expansion.

Long-term Debt

Matures in 10 years or more.

Medium-term Debt

Matures in 5 years or more.

Short-term Debt

Matures in under 5 years

Money Market Securities

Always mature in one year or less.

Security

an intangible financial asset that may be bought, sold, or gifted between persons. It may be represented by a paper certificate or held in an electronic record.

Board of Directors

Individuals elected by stockholders to establish corporate management policies.

Issued Stock

Authorized stock that has been sold to investors.

Unissued Stock

Portion of authorized stock not distributed to investors chartered by a new corporation.

Outstanding Stock

Includes all shares that a company has issued and that are in the hands of investors.

Treasury Stock

Stock that a corporation has issued and then later bought back.

Large Cap Stocks

Have a market capitalization in excess of $10 billion.

Blue Chip Stocks

Companies that are well established and have demonstrated their ability to pay dividends in good times and bad.

Mid Cap Stocks

Have a market capitalization anywhere from $2 billion to $10 billion.

Small Cap Stocks

Have a market capitalization anywhere from $250 million to $2 billion.

Penny Stock

An OTC Equity Security trading at less than $5 per share.

Securities and Exchange Commission (SEC)

Commision created by congress to regulate the securities markets and protect investors.

Broker-Dealer

Person or firm in the business of buying and selling securities and or futures.

Market Value

The price at which investors buy or sell a share of common stock.

Suitability

A determination made by a registered representative as to whether a particular security matches a customers objective.

Quotation

The price being offered or bid by a market maker or broker-dealer.

Registered Representative (RR)

An associated person engaged in the investment banking or securities business.

Stock Certificate

Printed evidence in ownership of a corporation.

Cash Dividend

Money paid to a corporations stock holders out of the corporations earnings or accumulated profits.

Tax Bracket

A point on the income-tax rate schedule.

Cost Basis

The price paid for an asset.

Ex-Dividend Date

The date when it is too late to buy stock and still be the owner of record on the record date.

Declaration Date

The date on which a company announces an upcoming dividends amount, payment date, and record date.

Record Date

The date an investor would need to be a holder of the stock on the records of the transfer agent.

Payable Date

The date that the corporation sends the dividend out to the shareholders.

Statutory Voting

Allows stockholders to cast one vote per share owned for each item on a ballot.

Cumulative Voting

Allows stockholders to allocate their votes in any manner they choose.

Form 10-K

Annual audited report that must be submitted by reporting companies to the SEC.

Preemptive Right

A stockholders legal right to maintain a proportionate ownership by purchasing newly issued shares before the stock is offered to the public.

Risk

The possibility that an actual return on investment will be lower than the expected return.

Limited Liability

The investors right to limit potential losses to no more than the amount invested.

Hedge

An investment made to reduce the risk of adverse price movements in a security.

Capital Gain

The profit realized when a capital asset is sold for a price higher than the purchase price.

Profitability

The ability to generate a level of income and gain in excess of expenses.

General Partner

An active party in a direct participation program who is personally liable for all debts of the program and who manages the business of the program.

Residual Rights

The right of a common stockholder to claim corporate assets in the event that the corporation ceases to exist.

Par Value

The dollar amount assigned to a security by the issuer.

Straight Preferred Stock

Has no special features beyond the stated dividend payment.

Cumulative Preferred Stock

An equity security that offers the holder any unpaid dividends in arrear.

Callable Preferred Stock

A type of preferred stock issued with a provision allowing the corporation to call in the certain price of a stock and retire it.

Convertible Preferred Stock

An equity security that may be exchanged for common stock at specified prices or rates.

Participating Preferred Stock

A stock that offers its owners an additional share of corporate profits after all other dividends are paid.

Purchasing Power Risk

The potential that, because of inflation, a certain amount of money will not purchase as much in the future as it does today.