equities vocabulary V Series 7 outline

Preemptive rights

1. companies offered existing stockholders the right to buy new shares of stock offered by the company before the shares were offered to the public
2. allowed stockholders to maintain their proportion of ownership in the event that maintain their proportion of ownership in the event the company issued new shares of common stock
3. companies felt the costs>benefits to the shareholders
4. allows the holder to purchase new shares of stock from the company at a fixed price which is less than the current market price of the company's outstanding stock at the time the right is issued
5. the holders of rights can exercise their rights or they can trade/sell the rights as they desire
6. holder can buy new shares subscribing to the offering
7. holder can sell the rights to another investor in the open market
8. holder can allow the rights to expire unexercised
9. rights expire within a certain short period of time usually 30-60 days after they are offered to existing shareholder

Rights

1. a stockholder is issued 1 right for every 1 share of stock that is owned
2. the rights offering allows the investor to maintain a proportionate interest in the company
3. stockholders are owners of the company, the amount of shares they own is their % ownership in the company
4. if holders do not buy new shares in a rights offering their proportionate interest decreases and the new shares that are issued are sold on the open market by a standby underwriter
5. ABC corp. decided to issue 10,000,000 new shares. They will first have a rights offering that will allow the holders of stock to purchase new shares, using 10 rights for each new share. An investor who owns 2,200 shares will have how many rights to buy new shares? 2,200 rights.
6. holders have one right for each 1 share they own. 
7. the amount of new shares will be determined by the number of rights it takes to purchase a new share

Warrants

1. a privilege of buying common stock at a preset price for a period of years
2. the price to buy the stock is usually above the present market price of the common stock when the warrants are issued
3. a warrant may be attached to a bond issued by the same corporation or can be attached to issues of newly issued stock
4. the bonds usually offer lower than current market interest rates yet the added value of the warrants makes the bonds that they are attached to more marketable
5. the warrants make the bonds they are attached to more marketable because they may be used to purchase stock at a discount in the future
6. if the market price of the stock goes up the warrants increase in value
7. warrants-the promise to buy shares at a set price
8. warrants-no right to dividends, no voting rights, no preemptive rights
9. trading unit, during an IPO warrants can be combined with stock to make the stock more desirable
10. after the IPO warrants can be separated from the shares of the stock for separate trading 
11. Which of the following is true of both rights and warrants that have been issued by a corporation? When the market price of the common stock increases, both the warrants and the rights increase in value. Rights and warrants become more valuable with stock price increases because they each have a set price at which the holder can buy common stock

Stock prices

1. stock prices used to follow expectations for current and future earnings and may have reflected the value of the company's assets and the dividends that were paid to current stockholders
2. stock prices are based on earnings and expectations of future earnings
3. the availability of information and easier access to buying and selling stock has changed the way stock prices are valued
4. stock prices today move higher or lower according to the supply and demand for the stock in the marketplace
5. the higher the demand the higher the price
6. the lower the demand the lower the price
7. institutional investors, mutual funds play a role in buying or selling large blocks of shares that can dramatically influence the price of a company's stock
8. the Dow Jones Industrial Average(DJIA) is one of the most-watched indicators of market activity
9. investors look at the market price of the stock compared to its earnings and dividends to determine if a company is a good buy 

Price/ Earnings ratio

1. the P/E ratio compares the market price per share/earnings per share
2. investors feel that a company will maintain the ratio they initially establish
3. if the P/E increases, the price of the stock increases
4. used to compare companies within the same industry
5. strong performance-high P/E
6. P/E considers the company's earnings for a period of 12 months and the current market price of the stock
7. P/E is shown as a whole number
8. The common stock for ABC Co. is selling for $46 per share. If the P/E ratio is 14 what are the approximate present earnings per share for the common stock? 3.28. 46/14. 

Purchasing stock

1. new issue, primary offering, when a stock is first released
2. public offering price, when purchased as a new issue at an Initial Public offering (IPO) at a fixed price w/ commissions included
3. secondary market, investor buys stock at a price that is determined by the "supply and demand" of other investors. 
4. if demand is high, price will be higher
5. if demand is low, price will be lower
6. primary offerings and secondary traded stocks are sold through broker/dealers (B/Ds)
7. an investor buys/sells and pays a commission or markup/markdown to compensate the B/D for the transaction
8. stocks traded in the secondary market are priced in dollars and cents
9. spread, difference between purchase price and sale price of the stock