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investment chapter 6.1 (v. basic characteristic of common stock (Stock…

- - - - Mainly an accounting term and not very useful to investors
  - - - The difference between the company’s assets minus the company’s liabilities and preferred stock
  - - - Total number of shares outstanding multiplied by the market value per share
  - - - Probably the most important measure for a stockholder
- - - - Stocks allow investors to tailor investments to meet individual needs and preferences
      - Stocks may provide a steady stream of current income through dividends
      - Stocks may increase in value over time through capital gains
- - - - The big returns (or losses) come from capital gains
- - - - Business risk
      - Financial risk
      - purchasing power risk
      - market risk
      - Event risk
- - - - Usually done to lower the stock price to make it more attractive to investors
      - Stockholders end up with more shares of stock that sells for a lower price
      - Investor with 200 shares in a 2-for-1 stock split would have 400 shares after the stock split
      - If the stock price was $100 before the split, the price would be near $50 after the split
  - - - Reduces the number of shares outstanding to public
      - Companies buyback when they believe stock is undervalued and a good buy
      - Companies may try to raise undervalued stock price or prop up overvalued stock price
      - May be used for mergers, acquisitions or employee stock option plans
  - - - Different shares may have different voting rights
      - Often used to allow a relatively small group to control the voting of a publicly-trade company
      - Ford family owns “B” shares and other investors own “A” shares; Ford family controls 40% of Ford Motor Company
      - May have different dividend payout schedules