Series 7 CN Session 1 - kaplanlearn.com

1

Series 7 Kaplan Financial EducationKaplan Financial Education

1©2014 Kaplan, Inc.

Benchmark SurveyIt is important to Kaplan that we provide you with the best licensing exam preparation possible. Your feedback is important to us. We will be asking you to evaluate both your class and your instructor. The evaluation process is done online to protect your privacy and to give you the freedom to be open in your response. espo se1. During the last day of class, you will receive the initial survey through your

email.2. If you do not respond to the first survey, you will receive a reminder email 3

business days after class. 3. A second survey will allow you to provide additional feedback regarding your

success on the exam.Thank you for taking part in this important process.


About the Series 7 Exam• Two parts• Six hours total• 250 questions250 questions• 72% to pass

3

Pass the exam the first time with Kaplan Financial Education

©2014 Kaplan, Inc.

Session OneEquity SecuritiesEquity Securities


Common Stock


Common StockA. Common stock (phases)

1. Authorized2 Issued2. Issued3. Treasury stock4. Outstanding


2

Common StockB. Rights of common (outstanding)

shareholders1. Right to inspect books and records1. Right to inspect books and records2. Right to vote for the board of directors


Common Stock (Rights of Common (Outstanding) Shareholders (continued))

100 100 100

StatutoryOwner of 100 shares

Three board seats

8

100Votes

100Votes

100Votes

CumulativeOwner of 100 shares

Three board seats300

Votes©2014 Kaplan, Inc.


3. Transfer ownershipa. Transfer agentb. Registrar



4. Dividends—only if declared by boarda. Types

1.) Cash2 ) St k2.) Stock

5. Adjustments for stock dividends and stock splits


Common Stock (Rights of Common (Outstanding) Shareholders (continued))Cost basis adjustment for stock dividends:Shareholder long 100 shares at $50Company declares 10% stock dividendHint: aggregate position value must be the same before and after adjustmentadjustment

Before adjustment: 100 shares × $50 = $5,000Calculate new cost basis $5,000 / 110 shares = $45.45(100 shares × 10% div. = 10 additional shares)

After adjustment: 110 shares × $45.45 = $5,000


Common Stock (Rights of Common (Outstanding) Shareholders (continued))Cost basis adjustment for even stock splits (2:1, 5:1)Shareholder long 100 shares at $40Stock splits 2:1Hint: aggregate position value must be the same before and after adjustment

Before split: 100 shares × $40 = $4,000Calculate new cost basis: $4,000 / 200 shares = $20(100 shares × split ratio 2/1)

After split: 200 shares × $20 = $4,000


3

Common Stock (Rights of Common (Outstanding) Shareholders (continued))Cost basis adjustment for uneven splits (3:2, 5:4)Shareholder long 100 shares at $40Stock splits 3:2Hint: aggregate position value must be the same before and after adjustment

Before split: 100 shares × $40 = $4,000Calculate new cost basis: $4,000 / 150 shares = $26.67(100 shares × split ratio 3/2)

After split: 150 shares × $26.67 = $4,000


1.) Process for cash dividendsDeclaration

E FINRA/E hof

ors


Ex = FINRA/Exchange

Record

PayableBoa

rd o

Dire

cto


6. In order to be entitled to the dividend, the investor must own the security on the record date

a. Cash settlementb. Regular way settlement


b egu a ay se e e7. Ex-date rules

Buy or sell: Receive dividend:Buy before ex-date YESBuy on or after ex-date NOSell before ex-date NOSell on or after ex-date YES



Declaration Date

16

Declaration Date

Ex Date

Record Date Payable Date

©2014 Kaplan, Inc.

Test Prep Question #1Five directors will be elected at the annual meeting of CDE. Under the cumulative voting system, an investor with 100 shares of CDE would have

A. 100 total votes that he could cast in any way he

17

A. 100 total votes that he could cast in any way he chooses among 5 directors

B. 500 votes that he could cast for each of 5 directorsC. 500 total votes; 100 votes that he could cast for each

of 5 directorsD. 500 votes that he could cast in any way he chooses

among 5 directors©2014 Kaplan, Inc.

Test Prep Question #2Who is responsible for ensuring that a corporation does NOT have more shares of stock outstanding than it has been authorized to issue?

18

A. RegistrarB. FINRAC. Transfer agentD. SEC

©2014 Kaplan, Inc.

4

Test Prep Question #3A client has 100 shares of GHI when the stock undergoes a split. After the split, the client has

A ti t l d d i t t i th

19

A. a proportionately decreased interest in the companyB. a proportionately increased interest in the companyC. no effective change in the value of the positionD. greater exposure

©2014 Kaplan, Inc.

Test Prep Question #4The ex-date isI. set by the board of directorsII. set by FINRA or the exchangeIII. the first date an investor can purchase a security and not be entitled to

the dividend

20

the dividendIV. the date the seller reimburses the buyer for the amount of the dividend

paidA. I and IIIB. I and IVC. II and IIID. II and IV

©2014 Kaplan, Inc.

Common StockC. Rights

1. Preemptive right/stock rightsa.) Right to maintain percentage ownershipb.) One right per share ownedc.) Short termc.) Short term

1.) Typically four to six weeks up to the ex-rights date set by the issuer

d.) Exercise price below market price2. Owner of rights may:

a.) Exercise (treat as contract)b.) Sell (treat as security)c.) Allow right to expire


Common StockD. Warrants

1. Long term2. Exercise price above marketp3. Usually attached to bond offering

a.) Marketabilityb.) Lower interest rate on bonds

4. Exercise, sell, or allow to expire


Test Prep Question #5A company is allowing its investors to purchase shares for the next 5 years at a fixed price slightly above today's market price. The company is issuing

23

A. futuresB. a letter of intentC. warrantsD. call options

©2014 Kaplan, Inc.

Preferred Stock


5

Preferred StockA. Characteristics

1. Preferencea. Liquidation proceedsb. Dividends

N ti i htc. No voting rights2. Par value = $100 (unless otherwise stated)3. Dividends (fixed, stated rate)

a. Percentage of par: ABC 6% Pfd Par $100b. Dollar amount: XYZ $6 Pfd Par $100

4. Suitable for investors seeking income (dividend yield of preferred generally higher than common shares)


Preferred Stock (Characteristics (continued))

5. Typesa. Straight (noncumulative)

Noncumulative

26

Last year$

This year$

Noncumulative Preferred6%

©2014 Kaplan, Inc.


b. Cumulative

Cumulative Preferred5%

27

Last year$

This year$

5%

©2014 Kaplan, Inc.


c. Convertible$100 PAR

5%

ConvertiblePreferred

Par Conversion price$100 $25

$100 4 :1 Ratio$25

=

28

5% Preferred

©2014 Kaplan, Inc.


d. Callablee. Participatingf Adjustable ratef. Adjustable rate


Test Prep Question #6Preferred stock has all of the following characteristics EXCEPT

A not all corporations issue preferred stock

30

A. not all corporations issue preferred stockB. preferred stockholders have either statutory or

cumulative voting rightsC. common stock is junior to preferred stock in the

event of a liquidationD. the price of preferred stock moves inversely with

interest rates©2014 Kaplan, Inc.

6

American Depositary Receipts (ADRs)Receipts (ADRs)


American Depositary Receipts (ADRs)A. US securities

1. Facilitate US citizens owning foreign sharesB. Holder bears foreign currency riskC. Depository bank is registered owner of foreign sharesD. Dividends are net of foreign withholding taxE. Generally, voting rights and preemptive rights are not

passed on to the holder of the ADR


Test Prep Question #7An ADR represents

A. a US security in a foreign marketB f i it i d ti k t

33

B. a foreign security in a domestic marketC. a US security in both the domestic and the foreign

marketsD. a foreign security in both the domestic and the

foreign markets

©2014 Kaplan, Inc.

Security Positions


Security PositionsA. Risk

1. Long position (bullish)—lose if price falls2. Short position (bearish)—lose if price rises

CloseOpen

35

BuySell

SellBuy

Long/Owner

Short/Owe

©2014 Kaplan, Inc.

Security PositionsB. Market value

1. Affected by earnings and dividends2. Determined by supply and demandy pp y


7

Security PositionsC. Return on investment

1. Dividends—current yield (current rate of return)


Security PositionsExample: Current (dividend) yield

.35 quarterly dividendCurrent market value (CMV) of stock; $25

Annual dividend = .35 × 4 quarters = $1.40

38

$1.40 .056 or 5.6%$25

=

annual dividendCurrent yieldCMV

=

©2014 Kaplan, Inc.

Security Positions2. Capital gains (losses)

a. Short-term capital gains have a holding period of 12 months or less

b L i l i h h ldi i d fb. Long-term capital gains have a holding period of more than 12 months


Test Prep Question #8If a company dividend remains unchanged but current market value goes down, what effect will that have on current yield?

40

A. Current yield goes down.B. Current yield stays the same.C. Current yield goes up.D. The effect on current yield cannot be calculated unless

the dividend and current market value are known.

©2014 Kaplan, Inc.

Test Prep Answers1. D2. A3. C4 C

41

4. C5. C6. B7. B8. C


Series 7 CN Session 1 - kaplanlearn.com

Documents

Transcript of Series 7 CN Session 1 - kaplanlearn.com