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Unformatted text preview: etimes lurk in these stocks. The core of the story
When you buy a stock, your potential return comes from two sources. The first is
the dividend that you expect the stock to pay over time and the second is the expected price
appreciation you see in the stock. The dividends you will receive from investing in stocks
will generally be lower than what you would have earned as coupons if you had invested the
same amount in bonds and this sets up the classic trade off between bonds and stocks. You
earn much higher current income on a bond but your potential for price appreciation is
much greater with equity. Bonds are less risky but equities offer higher expected returns.
But what if you could find stocks that deliver dividends that are comparable to the coupons
paid on bonds? There are two different arguments made by those who believe that such
stocks are good investments.
q The Optimist Pitch: “You have the Best of Both Worlds”: In this pitch, you are told
that you can get the best of both bond and equity investments w...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.
- Spring '11