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Questions and Answers
What is a primary risk associated with common shareholders?
What is a primary risk associated with common shareholders?
In case of bankruptcy, which group has the highest claim on the company's assets?
In case of bankruptcy, which group has the highest claim on the company's assets?
What distinguishes common share dividends from interest payments on debt?
What distinguishes common share dividends from interest payments on debt?
What form of share registration increases the negotiability of common shares?
What form of share registration increases the negotiability of common shares?
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What is another term commonly used to describe common share capital?
What is another term commonly used to describe common share capital?
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Which service provides computer-based systems for clearing and settling securities transactions?
Which service provides computer-based systems for clearing and settling securities transactions?
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What is a consequence of common shares having a weak position on asset claims?
What is a consequence of common shares having a weak position on asset claims?
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Which of the following statements about ownership evidence of common shares is true?
Which of the following statements about ownership evidence of common shares is true?
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Which group of investors is typically included as common shareholders?
Which group of investors is typically included as common shareholders?
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What condition does not guarantee common shareholders receive dividends?
What condition does not guarantee common shareholders receive dividends?
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What is the term used for shares that do not accumulate unpaid dividends?
What is the term used for shares that do not accumulate unpaid dividends?
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Which index includes a selection of the largest and most liquid stocks traded in Canada?
Which index includes a selection of the largest and most liquid stocks traded in Canada?
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What is the purpose of a dividend reinvestment plan?
What is the purpose of a dividend reinvestment plan?
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Which terminology refers to shares that have priority for dividends and in liquidation events?
Which terminology refers to shares that have priority for dividends and in liquidation events?
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In stock trading, what does 'ex-dividend date' indicate?
In stock trading, what does 'ex-dividend date' indicate?
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Which of the following describes a share consolidation?
Which of the following describes a share consolidation?
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What is meant by the term 'pari passu' in financial contexts?
What is meant by the term 'pari passu' in financial contexts?
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What does dollar cost averaging refer to in investment strategies?
What does dollar cost averaging refer to in investment strategies?
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Which type of preferred shares has dividends that are fixed but can adjust during specific intervals?
Which type of preferred shares has dividends that are fixed but can adjust during specific intervals?
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What is the minimum annual rate for dividends after the initial five-year period of Class D non-cumulative redeemable fixed-reset preferred shares?
What is the minimum annual rate for dividends after the initial five-year period of Class D non-cumulative redeemable fixed-reset preferred shares?
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How often can shareholders convert their fixed-reset preferred shares to floating-rate preferred shares?
How often can shareholders convert their fixed-reset preferred shares to floating-rate preferred shares?
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What determines the fixed-rate dividend during the initial five-year period for Class D shares?
What determines the fixed-rate dividend during the initial five-year period for Class D shares?
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What is the par value of the Class D Non-Cumulative Redeemable fixed-reset preferred shares mentioned in the example?
What is the par value of the Class D Non-Cumulative Redeemable fixed-reset preferred shares mentioned in the example?
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Which of the following statements is true regarding the dividends of the Class D preferred shares?
Which of the following statements is true regarding the dividends of the Class D preferred shares?
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What specific feature distinguishes fixed-reset preferred shares from rate-reset preferred shares?
What specific feature distinguishes fixed-reset preferred shares from rate-reset preferred shares?
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What is the stated fixed dividend amount per share per year during the initial five-year period for Class D shares?
What is the stated fixed dividend amount per share per year during the initial five-year period for Class D shares?
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What can happen to the fixed-rate dividend amount for holders of Class D shares after the initial period?
What can happen to the fixed-rate dividend amount for holders of Class D shares after the initial period?
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When are dividends for Class D preferred shares payable?
When are dividends for Class D preferred shares payable?
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What primary advantage do common shares offer over bonds in the long term?
What primary advantage do common shares offer over bonds in the long term?
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Which of the following accurately describes preferred shares?
Which of the following accurately describes preferred shares?
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What is a potential disadvantage of owning common shares compared to preferred shares?
What is a potential disadvantage of owning common shares compared to preferred shares?
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How do stock market indexes measure market performance?
How do stock market indexes measure market performance?
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What characteristic is NOT typically associated with common shares?
What characteristic is NOT typically associated with common shares?
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What is the primary emphasis of pension funds when they include common shares in their portfolios?
What is the primary emphasis of pension funds when they include common shares in their portfolios?
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What effect do stock splits and consolidations have on shareholder value?
What effect do stock splits and consolidations have on shareholder value?
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Which of the following best characterizes the reliability of common shares as an investment?
Which of the following best characterizes the reliability of common shares as an investment?
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Why are preferred shares appealing to certain investors in the Canadian market?
Why are preferred shares appealing to certain investors in the Canadian market?
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What aspect distinguishes preferred shares from common shares?
What aspect distinguishes preferred shares from common shares?
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What percentage gain does the index represent for the year based on the provided calculation?
What percentage gain does the index represent for the year based on the provided calculation?
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In a value-weighted index, how do companies with large market capitalizations influence the index?
In a value-weighted index, how do companies with large market capitalizations influence the index?
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What is a key difference between a market-weighted index and a stock average?
What is a key difference between a market-weighted index and a stock average?
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What characterizes the behavior of a stock's weight within a market average?
What characterizes the behavior of a stock's weight within a market average?
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How is a stock average influenced by price changes of stocks included in it?
How is a stock average influenced by price changes of stocks included in it?
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Which of the following sources is NOT mentioned as a place to find indexes related to the S&P/TSX Composite Index?
Which of the following sources is NOT mentioned as a place to find indexes related to the S&P/TSX Composite Index?
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Study Notes
Equity Securities Overview
- Common shares are essential for investors, known for long-term returns exceeding bonds and inflation protection.
- Common stock performance is tracked by various market indexes, instrumental for gauging market activity.
- Common shares provide ownership rights, potential dividends, and are typically part of portfolios like pension funds and mutual funds.
- Common share investment carries risks; total loss of investment is possible if the company fails.
Characteristics of Common Shares
- Common shareholders rank behind senior creditors and preferred shareholders in bankruptcy claims, implying a weak position for asset recovery.
- Dividend payments are discretionary and not guaranteed, unlike fixed interest payments on debt.
- Shares are often registered under street certificates, enhancing negotiability and transferability.
Preferred Shares
- Preferred shares represent a significant investment within the Canadian market, appealing due to their fixed-income characteristics.
- They can have various structures, appealing to different investor needs and behaviors.
- Includes types like fixed-rate perpetual, fixed-reset, and floating-rate preferred shares, each with distinct features for income generation.
Investment Dynamics
- Fixed-reset preferred shares offer a fixed dividend for an initial term, with options for rate adjustments and conversions post-term.
- Non-cumulative dividends mean missed payments do not accrue, impacting income reliability.
Example of Preferred Shares
- ABC Corporation’s Class D Non-Cumulative Redeemable fixed-reset shares offer a 4.25% fixed annual dividend for the initial five years, payable quarterly.
- Post-initial term, dividends are reset based on the government bond yield, with conversion options to floating-rate shares.
Indexes and Stock Averages
- The S&P/TSX Composite Index is a value-weighted index reflecting larger companies’ performance, impacting overall market behavior.
- Stock averages represent a group of stocks and are computed as arithmetic means without specific weight adjustments, making them price-weighted.
- Even minor price changes in higher-value stocks can disproportionately influence averages, demonstrating the volatility within stock performance metrics.
Canadian Market Context
- TSX and TSX Venture Exchange compile and publish various indexes representing differing sectors within the Canadian economy.
- Key information such as dividend yields and price-to-earnings ratios can be accessed through financial publications and reports.
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Description
Explore the essential aspects of equity securities, focusing on common and preferred shares. Understand their characteristics, potential risks, and roles within investment portfolios. This quiz covers important concepts that will enhance your knowledge of stock market participation.
