Equity Securities

Common Stock

• Represents ownership in a corporation with voting rights and residual claim on assets after creditors and preferred stockholders.
• Common dividends are not fixed and are declared by the board of directors. In liquidation, common stockholders are paid last.
• Market value is influenced by earnings, interest rates, sector conditions, and investor sentiment. Book value = tangible net worth / common shares outstanding.

Preferred Stock

• Hybrid security with fixed dividend stated as a percentage of par or as a dollar amount. Current yield = annual dividend / current market price.
• Types include cumulative, participating, adjustable-rate, and convertible preferred. Cumulative preferred receives unpaid dividends in arrears before common can be paid.
• Convertible preferred conversion ratio = par value / conversion price. Conversion value = conversion ratio x common market price.

Corporate Actions

• Stock split increases shares outstanding and lowers market price per share proportionally; total value is unchanged.
• Reverse split reduces shares and raises price per share. Stock dividend increases share count and lowers cost basis per share.
• Rights are short-term preemptive privileges issued to existing shareholders; warrants are long-term and usually issued with debt or preferred offerings.

Series 7 focus

• Know the difference between market capitalization, book value, liquidation priority, and dilution. Diluted EPS falls when convertibles or warrants are exercised.
• Ex-dividend dates affect who receives the dividend, and buyers on or after ex-date do not receive it.