Tempe 2021 FIN 300 – Quiz #3 Study Guide
It should cover most of the material on the quiz, and will cover ONLY Chapter 9, the Equity
Securities Notes (Posted in Canvas), the examples we reviewed in class, and the Small Cap
Article (Posted in Canvas and discussed in class).
It is administered on Respondus Lockdown Browser and will be available from 5:00 AM until
11:59 PM Arizona time Tuesday 11/02/2021. It will time out at 11:59 PM. You will have 30
minutes to complete it. Exam format is multiple choice, approximately 15 questions
definitions and mathematical calculations.
You may use ONE large index card, front and back, with your notes on that card. No other
notes or sources of information. NO CELL PHONES or other electronic devices. You may use a
calculator and ONE page of scratch paper.
Common stock – basic ownership claim on a corporation
Security – investment that represents either an ownership or debt in a company
Debt vs. Ownership
Debt – buying a company’s bonds
- Loan to a company in exchange for interest income and the promise to repay the loan at
a future date
Ownership – stock (equity)
Common stockholders rights – List and definitions.
- Right to vote
- Preemptive rights – right to first refusal
- Right to inspect books of the company
- Right to sue for wrongful acts
- Right to transfer ownership
- Right to share in the profits of the company
- Residual claims on assets
The ways that common stock can be classified.
- Authorized (number of claims company can issue or sell)
- Issued (has been distributed to investors)
- Outstanding (shares a company has issued but not re-purchased, investor owned)
- Treasury (buying back own shares to reduce shares outstanding, do not carry rights of
outstanding common shares)
Residual claims to assets – List.
- Admin costs (legal fees)
- Wages and salaries
- Taxes
- Secured creditors
- Unsecured creditors
- Preferred stockholders
- Common stockholders
Risks of owning stock – market risk, decreased or no income, low priority to dissolution
Primary market – (new-issue market) shares of stock are first brought to the market and sold to
investors
Secondary market – existing shares are traded amongst investors
Market order – immediate execution at best price (buy or sell order)
Limit order – customer is specific about the price they want to spend or receive for a security
Day order – orders that are processed during normal working hours
Good –till cancelled (GTC) – order is kept open until executed or cancelled (open order)
Cancelled Order (Remember we discussed this in class).
Stock Splits – Forward and Reverse and how to calculate them.
Current Yield (Dividend Yield) – How to calculate it
Price-Earnings Ratio (PE Ratio) – How to calculate it.
Dividends and Capital gains.
Small cap, Mid cap, Large cap – Definitions and $ amounts. Liquidity issues with small cap.
