Chapter 4 - Chapter 4 Common stock or equity represent...

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Common stock or equity represent ownership First appeared in the 16 th century to raise funds for exploration Voyages were dangerous Spread risk though joint-stock companies Joint stock companies More than one expedition at once Shareholders received share of profits Shares could be resold 8-1 Chapter 4
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Stocks: Essentials Key instrument used to hold wealth Central linkage between Tell us the value of a firm Allocate scarce resources Shares are a small fraction of firm’s value Large number of shares outstanding Priced so that small investments possible Stockholders are residual claimants Limited liability Shareholders can replace bad managers 8-2
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Stocks: Important Characteristics Residual Claim Stockholders are paid after everyone else. Stock is risky since it is leveraged Limited Liability Maximum loss is the amount invested If firm owes money to Workers Suppliers Bondholders Stockholders are not liable for it 8-3
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This note was uploaded on 02/12/2012 for the course ECON 101 taught by Professor Abrams during the Spring '11 term at Adams State University.

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Chapter 4 - Chapter 4 Common stock or equity represent...

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