SIE Equity • What You Need to Know

A clean, exam-focused equity summary: common vs preferred stock, market structure, order types, dividends & dates, stock splits, ADRs, rights/warrants, REITs, and high-frequency SIE-style traps.

Tip: Use search to jump quickly. You can also print to PDF (Print button) for a one-sheet.

Core Notes (Read like a checklist)

Open each section. Everything here is “SIE-level”: definition + intuition + common traps.
1) Common Stock Basics (ownership language) must know
  • Common stock = ownership in a corporation.
  • Common shareholders usually have voting rights (e.g., electing the board).
  • They may receive dividends if declared, but dividends are not guaranteed.
  • In liquidation, common stockholders are residual claimants (paid after creditors and preferred stockholders).
Quick intuition: Common stock = more upside potential, but also more risk than debt and preferred in the capital structure.
2) Preferred Stock (hybrid features) definitions
  • Preferred stock has characteristics of both equity and fixed-income-like cash flow.
  • Preferred dividends are generally stated as a fixed amount (or percentage of par) and have priority over common dividends.
  • Cumulative preferred: unpaid dividends accumulate (arrears) before common dividends can be paid.
  • Preferred may be callable and/or convertible.
  • Preferred stockholders usually have limited or no voting rights under normal conditions.
Exam shortcut: Preferred = dividend priority over common, but usually less upside than common.
3) Primary vs Secondary Market (IPO & SEO) market structure
  • Primary market = securities are sold for the first time (or newly issued again), and the issuer is raising capital.
  • Secondary market = investors trade existing shares with each other (the company is usually not receiving proceeds).
  • IPO (Initial Public Offering) = a company’s first sale of stock to the public in the primary market.
  • SEO (Seasoned Equity Offering) / Follow-on offering = a company that is already public issues additional shares in the primary market.
  • Underwriters / syndicates help price and distribute new issues (IPO / SEO).
Fast test logic:
IPO = first public sale • SEO = later new stock issue by an already public company • Exchange trading between investors = secondary market
Common trap: If an existing shareholder sells already outstanding shares to the public, that is generally not a new issuance by the company (not primary capital raised by the issuer).
4) Equity Trading Venues and Quotes test favorite
  • Stocks trade on exchanges and in dealer/network markets (including electronic venues).
  • Bid = highest price a buyer is willing to pay.
  • Ask (offer) = lowest price a seller is willing to accept.
  • Spread = ask − bid.
  • Market makers/dealers help provide liquidity by posting quotes.
Investor perspective:
You buy at the ask • You sell at the bid
5) Order Types (market, limit, stop) must know
  • Market order: executes promptly at the best available price (price is not guaranteed).
  • Limit order: sets a maximum buy price or minimum sell price (price control, no execution guarantee).
  • Stop order: becomes a market order when stop price is reached (used to limit losses or enter on momentum).
  • Stop-limit order: becomes a limit order after stop is triggered (adds price control, but may not execute).
Common trap: A limit order guarantees price, not execution. A market order favors execution, not price.
6) Dividends and the Key Dates dates
  • Declaration date: board announces dividend.
  • Record date: company checks its shareholder list.
  • Payable date: dividend is paid.
  • Ex-dividend date: if you buy on or after this date, you generally do not receive that dividend.
Exam memory trick: To receive the dividend, you must own the stock before the ex-date.
7) Stock Splits and Reverse Splits mechanics
  • Stock split (e.g., 2-for-1): shares increase, price per share decreases proportionally.
  • Reverse split (e.g., 1-for-4): shares decrease, price per share increases proportionally.
  • A split alone does not change the investor’s total market value (ignoring market reaction).
  • Per-share figures (like EPS) are adjusted for comparability when companies report historical data.
Fast check: 100 shares at $40 in a 2-for-1 split → 200 shares at about $20 (same total ≈ $4,000).
8) Long vs Short Stock (basic idea) risk concept
  • Long stock: profit if price rises; loss if price falls.
  • Short sale: investor sells borrowed shares and hopes to buy them back later at a lower price.
  • Short seller profits if price falls; loses if price rises.
  • Short selling can involve margin requirements and potentially very large losses if price rises sharply.
Exam trap: Short-sale loss potential can be very large because a stock price can keep rising.
9) ADRs and International Equity Exposure products
  • ADR (American Depositary Receipt) represents shares of a foreign company and trades in U.S. markets.
  • ADRs can make foreign investing easier for U.S. investors.
  • ADR investors may face currency risk and country/political risk in addition to company risk.
Key idea: ADR trades in dollars here, but the underlying company still operates abroad.
10) Rights and Warrants exam favorite
  • Rights are short-term privileges for existing shareholders to buy new shares (often at a discount).
  • Warrants are longer-term instruments that allow purchase of stock at a stated price.
  • Both can be valuable if market price rises above the exercise/subscription price.
  • Exercise of warrants/rights can increase shares outstanding (dilution concern).
Trap: Rights and warrants are not the same as common stock itself; they are purchase privileges.
11) REITs and Equity-Income Hybrids recognition
  • REITs (Real Estate Investment Trusts) provide real estate exposure through securities markets.
  • Equity REITs primarily own/manage properties.
  • Mortgage REITs focus more on real estate debt/mortgages.
  • REITs are often associated with income-oriented investors, but prices can still be volatile.
SIE-level point: Know the basic difference between equity REIT and mortgage REIT.
12) Equity Ratios and Basic Metrics calculation basics
  • Market capitalization = share price × shares outstanding.
  • EPS (earnings per share) is a basic profitability measure on a per-share basis.
  • P/E ratio = share price ÷ EPS.
  • Dividend yield ≈ annual dividend per share ÷ current stock price.
  • Float refers to shares available for public trading (not closely held/restricted).
Mini drill: Price = $50, annual dividend = $2 → dividend yield ≈ 4.0%.
13) High-Frequency Equity Exam Traps read twice
  • Buy at ask / sell at bid (students reverse this a lot).
  • Limit order does not guarantee execution.
  • Ex-date: buy on/after ex-date → usually no upcoming dividend.
  • Preferred stock has dividend priority over common, but usually limited voting rights.
  • Stock split changes share count and price/share, not total value (mechanically).
  • Short sale profits from price declines, not increases.
  • Rights/warrants are purchase privileges, not identical to common shares.
Practice technique: After answering, explain why each wrong choice is wrong in one sentence.