Group 5 - Vietnamese Stock Market

Group 5 - Vietnamese Stock Market - STOCK I Stocks...

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STOCK I. Stock’s definition: Stock is a share in the ownership of a company. It represents a claim on the company's assets and earnings Stockholders are the legal owners of a corporation When a company would like to grow, it issues stocks to raise capital and pay for ongoing business activities o The company does not have to repay the money, just pay dividends o Paying dividends is optional II. Return on stock: The returns on a stock over one period ( R t ) can be divided into capital gains and dividend returns: P t = stock price at time t D t = dividends paid over time t – 1 to t ( P t – P t – 1 ) / P t – 1 = capital gain over time t – 1 to t D t / P t – 1 = return from dividends paid over time t – 1 to t III. Types of stock: A. Common stock: Definition: Common stock is the fundamental ownership claim in a public or private corporation Feature of common stock that differentiate it from other types of securities: 1. Dividend The payment and size of dividend are determined by the board of directors of issuing firm Dividend is discretionary and are thus not guaranteed The stock holders have no legal recourse if dividends are not paid Income the stock holders get from dividend will be taxed twice – once at the firm level in corporation’s income tax and once at personal level in personal income tax. => choose option to reinvest almost of dividend to the firm because: When stock hold reinvest dividend, they will make the growth of the firm, the growth of the firm make the stock price increase. Thus they can sell the stock to get income. This is the income from capital gain and this income is taxed at a much lower rate than the income from dividend.
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Group 5 Vietnamese Stock Market 2. Residual claim Common stockholders have the lowest priority claim in the event of bankruptcy. It means that only after all senior claims are paid (claim of employees, bond holders, government’s tax, and preferred stock), the common stock holders are entitled to what assets are left. 3. Limited liability Limited liability implies that common stockholders losses are limited to the amount of their original investment in the firm’s asset falls to less than the amount if debts it owes. It means that the properties of common stockholders outside their ownership claims in the firm are unaffected by the bankruptcy of the firm. 4. Voting right Common stockholders has voting rights in the election of the board of directors Dual-class firms have two classes of common shares outstanding, with different voting rights assigned to each class. Example: class A stock are entitled to have 1/10 voting right per stock, while class B have 1 voting right per stock. There are two methods of electing a BOD are generally used:
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This note was uploaded on 01/16/2012 for the course ECON 101 taught by Professor Tom during the Spring '11 term at FH Joanneum.

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Group 5 - Vietnamese Stock Market - STOCK I Stocks...

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