Securities Products and Markets Flashcards

A preferred stock that allows unpaid dividends to accumulate before common stockholders receive any dividends is called:

Answer: Cumulative preferred

Cumulative preferred stock requires that all unpaid past dividends (arrears) be paid to preferred shareholders before common shareholders can receive any dividends.

The spread between the bid price and ask price of a security is known as the:

Answer: Bid-ask spread

The bid-ask spread is the difference between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask), representing the market maker's compensation.

Under the Securities Act of 1933, which type of offering is exempt from full SEC registration requirements?

Answer: Regulation D private placements

Regulation D provides exemptions from SEC registration for private placements, which are sales to accredited investors and a limited number of sophisticated buyers without a public offering.

A bond trading at a price below its par value is said to be trading at a:

Answer: Discount

When a bond's market price is below its face (par) value—typically $1,000—it is trading at a discount, usually because prevailing interest rates have risen above the bond's coupon rate.

Which index measures the performance of 500 large-cap U.S. companies and is widely used as a benchmark for the U.S. equity market?

Answer: S&P 500

The S&P 500 tracks 500 large-capitalization U.S. stocks selected by a committee and is considered one of the most representative benchmarks of U.S. equity market performance.

Which of the following best describes an exchange-traded fund (ETF)?

Answer: A basket of securities that trades on an exchange like a stock

ETFs are investment funds holding a basket of securities (stocks, bonds, etc.) whose shares trade intraday on a stock exchange at market prices, combining features of mutual funds and stocks.

When an investor sells a security they do not own, borrowing it from a broker, this strategy is called:

Answer: Short selling

Short selling involves borrowing a security and selling it in the open market, with the obligation to repurchase and return it later, profiting if the price declines.