Topic 8_stock - Topic 8 Stocks Readings: Chap 5 (5.4-5.9) &...

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Topic 8 Stocks Readings: Chap 5 (5.4-5.9) & Chap 14 (14.3) & Chap 1(1.5)
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Common Stock - Basics Common Stock - A share of common stock, or equity, represents an ownership claim on a firm that has no maturity and no promised payments. Investors who own stock are called shareholders No maturity No promised payments Dividend - Cash distribution from the firm to the shareholders. Declared at the discretion of the board of directors
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Common Stock VS Bond -- Corporation Common Stock Ownership right. Last to be paid in case of bankruptcy. No promised payments. Carries voting rights to elect directors and approve certain actions. Dividend payments are not tax deductible. Bond Debt to the corporation. Debt holders are the first to be repaid in case of bankruptcy. The corporation promises to return face amount at maturity. The corporation promises to pay coupons at a fixed interval Coupon payments are tax deductible.
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Preferred stock Preferred Stock has no maturity, but receives a pre-specified regular dividend. Has a face value Like a perpetual bond
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Preferred Stock VS Common Stock Common Stock No promised payments. Carries voting rights to elect directors and approve certain actions. Last to be paid in case of bankruptcy. Preferred Stock Have a face value Have fixed dividends Cumulative dividends To be repaid before common stockholders in case of bankruptcy.
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Book Value - Net worth of the equity according to the balance sheet. Market Value – Stock price multiplied by the number of shares outstanding P/E Ratio - Price per share divided by earnings per share (EPS). Dividend yield – dividends per share divided
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This note was uploaded on 06/07/2011 for the course FINANCE 103 taught by Professor None during the Spring '11 term at University of Illinois, Urbana Champaign.

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Topic 8_stock - Topic 8 Stocks Readings: Chap 5 (5.4-5.9) &...

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