Valuing Stocks

In: Business and Management

Submitted By mother55
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Pages 3
Valuing Stocks 1. "As owners, what rights and advantages do shareholders obtain" (Cornett, Adair, & Nofsinger, 2014, p. 203)?

They are able to participate in the economic growth of publicly traded firms without having to manage business entities directly. They have the right to residual cash flows of corporate profits and often receive some of these cash flows through dividends. In addition, shareholders vote on the members for board of directors and other proposals for the company. Shareholder capital losses are capped in that they can only lose their initial investment. Stocks are very liquid and investors can enjoy this liquidity in both their entrance into the stock market and their exit from it.

2. "Why might the Standard and Poor's 500 Index be a better measure of stock market performance than the Dow Jones Industrial Average" (Cornett, Adair, & Nofsinger, 2014)?

The S&P 500 is a broad market index that includes stocks of the 500 largest US firms from ten sectors of the economy. It captures 80% of the overall stock market capitalization and is a good proxy for what is occurring in the overall stock market.

3. "What are the differences between common stock and preferred stock" (Cornett, Adair, & Nofsinger, 2014, p. 203)?

Common stock dividends change over time, hopefully increasing in the long-term. Preferred stock pays a constant dividend. Preferred stockholders have higher precedence for payment in the event of firm liquidation from bankruptcy. However, preferred stockholders do not have voting rights that common stock holders enjoy. Preferred stock prices fluctuate with market interest rates and behave like corporate bond prices. Common stock price changes with the value of the company are underlying business.

4. "On March 14, 2013, the Dow Jones Industrial Average set a new high. The index closed at…...

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