microecon - Stock buying a share of company 1) Ownership 2)...

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Stock – buying a share of company 1) Ownership 2) Infinite life 3) May pay a dividend If the price rises: - Capital gain If the price falls: - Capital loss Earnings per share (EPS)- Total earnings/ total shares P/E ratio: Price/Earnings ratio Price of a share/ earnings per share A higher P/E ratio shows more growth potential as expected by stock market participants Dividend yield: EPS/price x 100=% In a year, this will be % yield Bond- lending a company money 1) Debt 2) Finite life 3) Must pay interest Types of companies 1) Proprietorships a. Single owner- easy to set up b. Advantage: profits are taxed once c. Disadvantage: unlimited liability (owner is ultimately responsible for company debts) 2) Partnerships a. Two or more partners b. Straightforward to set up c. Advantage: profits taxed once d. Disadvantage: Unlimited liability 3) Corporations a. Owned by one or more shareholders b. Complicated setup c. Advantage: limited liability (only stocks will be lost) d. Disadvantage: profits are taxed twice
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microecon - Stock buying a share of company 1) Ownership 2)...

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