Series 7 Chpt 4

what is a standard corporation?
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what is a standard corporation?
(also known as Subchapter C Corp), one that's taxed separately from its owners and has an unlimited number of shareholders.
how are standard corporations taxed?
taxed twice—first at the corporate level and, if distributed as a dividend to shareholders, it's then taxed to the shareholder.
difference between affiliated directors and non affiliated
In many cases, certain senior executives of the corporation, such as the CEO and the president, also serve on the board of directors. These persons are referred to as affiliated directors. Non-affiliated directors (outside directors) are the persons who are not connected to the corporation.
what are closed or privately held corporations?
a limited group of people often owns all of the stock and also serves as the corporation's directors and managers. Since there's no public market for the stock of these companies, these corporations are referred to as
how do you find the market capitaliztion?
multiplying the current market price of the stock by the number of outstanding shares.
what is a spin-off transaction?
occur when a parent company distributes shares of a subsidiary company to the parent company's shareholders. In a spinoff, each shareholder of the parent retains her original shares, but is also given shares in the newly created entity.
what is considered a reclassification of securities? what is not?
Stock splits, reverse stock splits, or changes in par value are not considered reclassifications. The most common reclassifications are acquisitions or mergers.
what is a tender offer?
when an entity offers to buy a corporation's shares, typically for the purpose of acquiring control of the company.
according to SEC rules, what is a customer not allowed to do in regards to a tender offer?
a customer may not tender shares that he's short since the stock has been temporarily borrowed and doesn't belong to the customer.
what is a leveraged buy out? (LBO)
the acquisition of a company by primarily using debt to finance the purchase.
who is referred to as the private equity (PE) firm in an acquisition?This type of acquisition allows the acquiring company, which is referred to as a private equity (PE) firm, to make the purchase without using much of its own equity.do preferred stock holders have voting rights?nopewhat is callable preferred stock?Callable, or redeemable, preferred stock can be bought back from investors, by the company, at a stated price. typically pays a higher dividend.Conversion Ratio FormulaPar Value / Conversion Priceif the conversion price for convertible stock is $25, what is the conversion ratio?4-1 ($100 par value / $25) The preferred stockholder will receive four shares of common stock for every one share of preferred stock.a notice is published stating that RMO 5% convertible preferred stock will be called at $102 per share. The preferred is convertible into 2 shares of common stock and RMO's common stock is selling in the market at $60 per share. After the notice appears, the price of the preferred stock will most likely trade in the market at... and why?near $120; Since the converted preferred stock has a value of $120 ($60 per common share x 2 conversion ratio) and the fact that the call price is only $102, the market price of the preferred stock will reflect the increased value of the common stock.t/f: The market prices of variable rate preferred stock is typically more stable than those of fixed rate preferred stock.TrueFor variable/adjustable rate preferred stock, its dividend rate adjusts under a predetermined formula and is based on...a benchmark, often t-bill rateswhat is series K preferred stock?begin with a fixed rate, but after a certain amount of time (approximately five years), they switch to a floating or adjustable rate.some series K preferred stock characteristicswide range of par values, no voting rights, non-cumulative dividends, but are qualified for tax purposes, and they are depository shareswhat are penny stocks defined asan unlisted equity security that has a bid price below $5.00 per sharewhat documentation is required to be given to the customer and when?Prior to any penny stock transactions being executed, the broker-dealer must provide the customer with a specific penny stock risk disclosure document.For each penny stock transaction, a broker-dealer must provide the customer with all of the following items, EXCEPT: A A risk disclosure document on penny stocks B The current quotation for the security C The compensation the broker-dealer will receive for the transaction D The compensation the registered representative will receive for the transactionA: a risk disclosurewhat documentation is required of a broker-dealer to purchase penny stocks for a customer?prior to the purchase of a penny stock by a customer, a broker-dealer must approve the person's account for penny stock transactions and obtain from the customer a written agreement that indicates the identity and quantity of the penny stock to be purchased.T/F: To approve a customer's account for transactions in penny stocks, the broker-dealer must obtain from the customer a manually signed and dated copy of the statementTRUE, must be manually signed and dateddifference between stock rights and warrantsrights are usually short term and warrants can be years if not endless. also warrants set a higher subscription priceT/F: Warrants are usually able to be detached from the securities with which they were originally issued and sold separately.TrueT/F: there is not currency risk involved in ADRsFALSE; Although they're priced in U.S. dollars, since ADRs represent indirect ownership of foreign securities, holders are still exposed to foreign currency risk.what are dark pools and whats the objective of them?a system that provides liquidity for large institutional investors and high-frequency traders, but it doesn't disseminate quotes. The objective is to allow these investors to trade with the least amount of market impact and with low transaction costs.ABC Corporation owns 1,000 shares of ATT (less than 20% of the company) and receives dividends of $2,000. how much will be tax free, how much wont?Since the dividend qualifies for the corporate dividend exclusion, $1,000 ($2,000 x 50%) will be tax-free. The corporation will be taxed on only the remaining $1,000.what is the corporate dividend exclusion or preferential tax treatment?In general, if a corporation owns less than 20% of the distributing corporation, 50% of the dividend income will be excluded from corporate income. If the corporation owns 20% or more of the distributing corporation, the exclusion is 65% of the total dividends received.T/F: dividends form REITs qualify for the dividend exlcusion.FALSE; they do not qualifywhen are stock dividends taxable? when are cash dividends taxable?cash: taxable in the year they are received dividends: not taxable at the time of the receipt because shareholder will have a reduce basis per-share but instead taxable when eventually soldwith a forward stock split, the number of shares owned will ____ and the cost basis per share will ____. With a reverse stock split, the number of shares owned will ____ and the cost basis per share will ___.forward: increase, basis pershare will decrease Reverse: decrease, increasewhat is cost basis?total price paid to acquire the security including any transaction costs (e.g., commissions)t/f: If any portion of the shares are subsequently sold, the investor may choose to designate which shares are being sold.true, if designated the BD must mark "versus purchase of..."what are the tax laws for short-term losses or gains versus long termlong-term capital gains are taxed at a maximum rate of 20%, while short-term capital gains are taxed at the same rate as ordinary income.what is netting?using capital losses to offset capital gains on a dollar-for-dollar basiswhat is the objective of netting?effectively reduces (or possibly eliminates) the tax liability that normally exists when capital gains are created.T/F: if an investor has both net long-term gains and net short-term losses, these two figures must be netted before the 20% tax rate applies.TRUEif capital losses exceed capital gains, what is the maximum amount of those losses that may be used in the current tax year as a deduction against ordinary income?$3,000What is the wash sale rule?You cannot, for tax purposes, declare a loss on a security if you purchase the same security within 30 days before or after the salewhat is the period covered by a wash sale?actually 61 days since it includes the date of sale and 30 days both before and after the date of sale.what happens if a wash sale is determined to have occured?the loss is denied and will be added to the cost basis of the new purchase.what is "substantially the same" for equity securities in regards to the wash sale rule?For common stock, in addition to the stock itself, rights, warrants, convertible bonds, convertible preferred stocks, or call options of the same company are considered "substantially the same" since they're able to be converted into the shares.what is "substantially the same" for debt securities in regards to the wash sale rule?if a bond is purchased and subsequently sold with only different accrued interest amounts, this will not be considered a relevant difference for avoiding the wash sale rule.T/F: If a short seller closes his position by buying the borrowed security and subsequently shorts the same security within a 30-day period, he will trigger the wash sale ruleTRUE; Short sales are also covered by the wash sale rule.