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Copyright Licensed Securities Training Solutions 2014 720 771-4386 1

Equities
Chapter 1
Securities License Training Solutions
Calvin Plummer plum2@q.com
Home 360 666-1234 (8:30 am 5:00 pm pacific time)
Cell 720 771-4386 (any time)
Copyright Licensed Securities Training Solutions 2014 720 771-4386
$1000
ABC Bond







2017 6%
$30
$30
$30
$30
$30
$30
$30
$30
$30

Current Yield = Annual income YTM = _____________ YTC = ______________
Price
Settlement
Corps + Munis T+3 30/360
Gov + Options T+1
actual/actual
Cash Same day
Reg T T+ 5

Starter Cheat Sheet
I P Y
Settlement Date
Last Coupon Date
Time Period of
Accrued Interest
Accrual Formula
Formulas
Acronyms
Memory points
1 pt = $10
P N C Y Y = (Price Nominal CY YTM YTC)

Corps + Munis = 1/8 Gov = 1/32
2
25% Reg T
Maintenance
CMVL
50% Reg T
Restricted
CMV
30% Reg T
Maintenance
CMVs
Low Coupon * High Coupon
Short Maturity Long Maturity *
Discount * Premium
Small Discount Large Discount *
Small Premium Large Premium *
Bond Volatility
Copyright Licensed Securities Training Solutions 2014 720 771-4386 3
$ Capital $
Capital = Money
Capitalization = raising money
Corporations publicly raise capital
two ways:
Take on more owners (sell stock)
Not required to repay investment or
dividends
Take on debt (sell bonds)
Must repay investment and pay interest
Earnings = profits
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Common Stock
Part owner of Corporation
Entitled to part of
distributed profits
Last in line
Dividend payment
Company dissolution



ABC

Common Stock


$1.00 Par value
Investment Vehicles
___________
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Common Stock
Selling stock = selling ownership in the company
Limited liability
Stock ownership entitles an investor to a:
Certificate of ownership (a stock certificate)
Right to any distributed profits
Distributed profits = Dividends
Corporations dont always distribute $
Not a right to dividends/earnings
Who decides?
T.Q. Shareholders cant vote for div
______________________________
Inspect company books records
Annual report card
Right to vote
Preemptive right to maintain proportional ownership position
Stock
Certificate
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Common Stock
Stock = equity = ownership
If it has stock in the name...
Incorporation requires common stock
Privately held or sold to public
Taxed on the number of shares authorized
Transferability - you can sell it to someone
else
__________Shares authorized in the
corporate charter
Corp must file state charter specifying
initial number of shares
Issued Shares authorized stock sold
at least once
Stock
Certificate

100 shares
Starbucks
Corp
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Common Stock
Outstanding Shares issued stock
currently in the hands of the public
____________Stock stock which
has been bought back by the
corporation
No dividends
No voting rights
Still considered issued but not
outstanding
Not included in computation of
EPS
Stock
Certificate

100 shares
Starbucks
Corp
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Common Stock Pricing
Car prices vary by make and model
Least expensive vehicle?
Most expensive vehicle?
Price is driven by supply and demand
Current Market Value = CMV
Stock prices vary by company
Least expensive stock?
Penny stocks - 5, 25
Most expensive stock?
Berkshire Hathaway about $100,000 per share
Par value is an arbitrary value



ABC

Common Stock

$1.00 Par value
Growth
Copyright Licensed Securities Training Solutions 2014 720 771-4386
Stock Bid/Ask Prices
Customer will ________ stock from the brokerage
firm at the Ask price (retail)
Customers will _________ their stock to the
brokerage firm at the BID price (wholesale)
Subject quote Subject of further checking
Its about 16-16.5, Its quoted at 16-16.5
Firm quote A Broker/Dealers actual price
It is 17.25-18.50 B/D must honor this price for 1
st
100
shares (round lot)
Bid
$12.85
Ask
$13.50
Spread = $.65
9
Copyright Licensed Securities Training Solutions 2014 720 771-4386 10
Voting Rights
100 shares = 100 votes
Position 1 Position 2 Position 3
Bill / Bob Mike / Mary John / Jane
100 votes 100 votes 100 votes
Statutory voting
100 votes per position
0 votes 0 votes 300 votes
______________voting
300 votes any way you
choose
T.Q. favors the small
shareholder
Proxies for absentee voting
Stock splits
Issuance of new stock
Convertible bonds
Mergers
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Stock Splits and Stock Dividends
Total
Change #Shares Price Value
Originally 100 $60 $6,000
2:1 Split (2/1) 200 (1/2) $30 $6,000
3:1 Split (3/1) 300 (1/3) $20 $6,000
3:2 Split (3/2) 150 (2/3) $40 $6,000
20% Stock
Dividend 120 $50 $6,000
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Part owner of the corporation
Preferred treatment
Dividend payment
Company dissolution

$100

ABC Preferred Stock


6%
_________$100
Annual rate based on par value
$6 stated if no par value is given
6% of $100 = $6/year
Preferred Stock
Income
Usually give up voting rights
Entitled to part of distributed
profits
If common gets a dividend...
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Preferred Stock
$100
Straight Preferred
Stock

5%
No back payments
$100
Cumulative Preferred
Stock

4%
Back payments
3% first round, up to any
level allowed by BOD
$100
Participating
Preferred Stock

3% and up
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Cumulative Preferred Stock
= $4 per year
Dividends are paid quarterly or
semi annually
$1.00 per quarter
Paid before common gets anything

Entitled to Back payments or payment in arrears
$100
Cumulative Preferred
Stock


4%
1
st
quarter $ 1.00
2
nd
quarter $ .75
3
rd
quarter ---------
4
th
quarter
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Current Yield (CY) = annual income/price
Tells an investor what they are making on their $

$100

ABC Preferred
Stock


6%
Preferred Stock
CMV $115
$6/$115 = .052 = 5.2%
Income $6/year
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Investment Banking
Public investors
Starbucks
$10,000,000 for expansion
1 million shares common stock
Investment Bankers
Misnamed, not really bankers
No loans or other banking functions
Help issuers raise capital (stock, bonds)
AKA Sponsor, Underwriter, Distributor
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Common Stock
Authorized 1,000,000 shares
Initial Primary offering (IPO) 600,000 shares
1st time a company sells stock
Considered issued and outstanding
Primary offering 100,000 shares
2nd, 3rd, 49th time a company sells stock
Total shares outstanding 700,000 shares

Primary offering means the issuer is getting the $

Secondary offering (large blocks of stock)
Sold by one or more wealthy investors
Issuer is usually not getting the $
Stock
Certificate

100 shares
Pen Corp
Copyright Licensed Securities Training Solutions 2014 720 771-4386
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Prospectus - the new Car brochure
Only new car buyers get a new car brochure
Prospectus
Issuers are required to produce and give to investors before they invest
Must include Material facts
Any fact an investor should know before purchasing
Litigation, significant events, facts
No highlighting, underlining info
Issuers include GM, Starbucks, investment companies
Primary Market
Prospectus only required on a primary (new car) offering
When an investor buys a security from an issuer
Secondary Market
No prospectus required on secondary transactions
When investors buy /sell to each other
SEC requirement
No approval or SEC disclaimer statement on cover or first page
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Special Securities
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American Depository Receipts
(ADRs)
Facilitates overseas trading of _
Banks in U.S. and foreign countries
Trading of foreign company stock on U.S.
exchanges e.g. NYSE
Trade with U.S. dollars
Dividends paid in U.S. dollars
After foreign tax with holding
No voting rights
No preemptive rights
ADR

100 shares
Nokia Corp
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Breyers Ice Cream
CMV $5.00/box
Breyers Ice Cream
Coupon $2.50
Starbucks Stock
CMV $35.00/share
__________term
_________Share holders only
Preemptive right
Proportional ownership can be
diluted if not exercised
Subscription Price
_________market price
No voting / Dividend rights
Starbucks Stock
Right
Subscription price
$31.00/share
Rights vs Warrants
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Rights vs Warrants
Breyers Ice Cream
CMV $5.00/box
Breyers Ice Cream
Coupon $15.00
Starbucks Stock
CMV $35.00/share
Starbucks Stock
Warrant
Subscription price
$42.00/share
__________term
Anyone can buy
Subscription Price
_________market price
No voting / Dividend rights
Sweetener w/bonds
Detachable
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Preemptive Right
Cum With Rights. Before Ex-Rights Date
Value = M S
N+1
Ex-Rights Without rights. After Ex-Rights Date
Value = MS
N
M = Market Price e.g $34
S = Subscription Price e.g $31
N = Number of Rights required to buy one share
e.g.10 rights to buy each share
Preemptive Rights
Formula for determining theoretical value of a
right
$ = /right

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Stock Capitalization
Capitalization = # shares
outstanding x current market
price
E.g.
50,000,000 shares x $25 per share
market price = $1.25 Billion
______ Cap (Capitalization)
$300 million -$2 Billion
____________growth
Hi risk/hi reward
Small relatively unknown
companies
Papa Johns $564 Million
Linens and Things $766 Million
PetsMart $742 Million
Revlon $131 Million
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Capitalization
Mid Cap
$2 - 10 Billion
Moderate growth
Medium risk/reward
Medium sized companies
PepsiCo $83 Billion
Coca Cola $124 Billion
Microsoft $309 Billion
General Electric $390 Billion
Target Stores $28 Billion
Wal-Mart $236 Billion
Toys R Us $3.9 Billion
Williams Sonoma $3.98 Billion
Barnes and Noble $2.4 Billion
Wendys $3 Billion
___________Cap
Above $10 Billion
______growth
Low risk/reward
Large, well known companies
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Dow Jones Industrial Average (DJIA)
AT&T
American Express
Boeing Company
Caterpillar
Chevron
Cisco
Coca Cola
DuPont
Exxon Mobil
General Electric
Goldman Sachs
Home Depot
3M
Intel
IBM

Johnson & Johnson
J.P. Morgan/Chase
McDonalds
Merck
Microsoft
Nike
Pfizer Inc
Procter & Gamble
Travelers
United Healthcare
United Technologies
Verizon
Visa
Wal-Mart Stores
Walt Disney Company

Copyright Licensed Securities Training Solutions 2014 720 771-4386 27
Stock Indices
Dow Jones
Composite 65
Industrials 30
Transportation 20
Utilities 15
Standard & Poor's 500 (400 are industrials, most
on NYSE, some on AMEX and Nasdaq)
Standard & Poor's 100
Russell 2,000- Benchmark for ___________stocks
Wilshire 5,000- Approximately 5,000 stocks
(includes NYSE, AMEX and OTC)

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Dividend Distributions for Stocks
1 Declaration date - the day the company declares the dividend
2 Ex-dividend date - day the stock trades without the dividend
Two days before the record date
Stock price _________by the amount of the dividend
3 Record date - the date on which ownership changes
4 Payment Date- Date the check is mailed
5 Must settle by close of business on record date to get dividend
Sept
xxxxxxxx
xxxxxxxx
xxxxxxxx
Nov
xxxxxxxx
xxxxxxxx
xxxxxxxx
Oct
S M T W T F S
1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
20 22 23 24 25 26 27
28 29 30 31
D
R Ex
P
CMV
Bid Ask
$13.21 $14.00
Price on Ex date
$12.71 - $13.50
50
DERP
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Share Price After Stock Dividend
Just prior to ex-date CMV = $48
20% stock dividend declaration
Assume
100 shares prior to dividend
Total value of holding dividend
100 x $48 = $4800 total value
100 shares x 20% = 20 additional share
New total after dividend 120 shares
$4800/120 shares = $40 New share price!
Total value of holding dividend
120 x $40 = $4800 total value