EQUITY MODULE 42

Question 1

42.1 What are the key features of common stock?

• voting rights
• dividends
• features
• risk/return

Answer 1

Question 2

42.1 What are the key features of preferred stock?

• voting rights
• dividends
• features
• risk/return

Answer 2

has an expectation of dividends

Question 3

42.1 What is cumulative voting?

Answer 3

linked with minority shareholding

Question 4

42.1 What are participating preferred shares?

Answer 4

Question 5

42.1 What are callable preferred shares?

Answer 5

something that is used according to market conditions

Benefits the issuer NOT the investor

Question 6

42.1 What are putable preferred shares?

Answer 6

This is the investor’s right!

If they decide this is suddenly a bad investment, they ca hand it back to the company at a pre agreed price

Like a price floor for the investors

Question 7

42.1 What are the advantages and disadvantages or private equity?

Answer 7

Question 8

42.1 Investing in non-domestic securities: explain the process by which DRs can be created to access wider markets

Answer 8

A bank, for example, can buy the shares form an overseas market, own them, and create Depositary Receipts to sell to domestic investors.

The domestic investors therefore do not own the shares themselves but access the returns.

NOTE - after the bank has bought the shares, there is no more trading of those shares

Question 9

42.1 What is the definition of a depositary receipt?

+ what is a DR ratio?
+ where do they trade?

Answer 9

Question 10

42.1 What are the details about DRs?

Answer 10

Question 11

42.1 What are sponsored/unsponsored depositary receipts?

Answer 11

unsponsored receipts are further away from the underlying company

Question 12

42.1 What is the difference between GDR and ADR?

Answer 12

ADR - more generally created for American investors in overseas companies

Question 13

42.1 What significance do the levels of sec registered have on DRs?

Answer 13

SEC registered : Level 1/11/111

The higher the level you get, the closer they are to being like issuing a share - and are more regulated

level 3 - SEC will be more involved, as will the underlying company

Question 14

42.1 What is rule 144A

Answer 14

Is a way of doing things to qualify the more sophisticated investors, so would not be there for the retail investors

Question 15

42.1 What are the return characteristics of equity?

Answer 15

Question 16

42.1 What does Accounting ROE measure?

Answer 16

Question 17

42.1 REMINDER: DuPont system

Answer 17

Question 18

42.1 How would you calculate the required answers here?

Answer 18

Question 19

42.1 What is the required return on equity?

+ how is it commonly calculated?

Answer 19

this is not an accounting calculation

Question 20

42.1 Hodges Fund provides mezzanine stage financing to private companies. In which type of private equity investing is Hodges Fund most likely involved?

Answer 20

Venture Capital - Venture capital providers invest in firms that are early in their life cycles. Stages of venture capital financing include seed stage, early stage, and mezzanine financing.

Question 21

42.1 Global depository receipts are most likely issued:

Answer 21

outside the issuer’s home country and denominated in U.S. dollars.

Global depository receipts are issued outside the U.S. and the issuer’s home country and are most often denominated in U.S. dollars. Depository receipts issued in the United States and denominated in U.S. dollars are called American depository receipts. Global registered shares are denominated in the home currencies of the exchanges on which they trade.