Chapter 8 Flashcards
What are common shares?
It represents ownership in a company
What happens to the value of shares if the value of equity changes
The value of shares increase
What are preferred shares?
They also represent ownership of a company that provides dividend payments.
are dividends fixed?
yes they are and they are seen as fixed-income
If an investor wants preferred shares what type of investor are they?
They want a steady income and a secure investment
which shares do you see more significant gain and loss?
Common shares
What is stock splitting
It is when a company splits the stock in half doubling the shares outstanding while cutting the price in half
does stock splitting increase total outstanding equity
NOOO
Exmple : 1.825 bln shares X $104.68 share price (what would stock split look like)?
Shares double
price in half
Does a company have to pay out dividends
no
What happens to share price after dividends are paid
Decreases by the amount of dividends
What are two dividends a company can give out?
- Cash dividend
- Stock dividends
What are ‘stock dividends’?
A company might give out stocks instead of cash
What is a dividend reinvestment plan
It is when an investor would rather receive stock instead of the ‘cash dividend’
Does all owners of shares get voting rights
mosty yes
What are some weird voting preiveleges
Some sharehodlers might have multi-voting shares (they have higher voting power)
What is tax treatment for dividends
It means those who receive dividends can get tax credits to reduce taxes paid
How are capital gains paid for taxed?
Are taxed 50% of tax rates on interest or employment income
Where are preferred shares ranked?
They are ranked behind debt holders but before common shareholders
How are they ranked?
They get paid first when they went bankrupt
Are preffered dividends paid nefore common dividends
Yes
What is the value of preferred shares?
Its the PV of future cash flow
are preffered dividends fixed?
yes
is there a maturity date for preffered dividends
no they are in perpetutity
How do you calculate ‘preferred diividends price’?
PV = c/r
c= dividends recieved
r = rate of return
why should we look at dividend yield of a company?
It allows us to compare apples to apples to see which company is better
How to calculate dividend yield
dividend/share price
What are stock index’ or averages
Its how we are able to compare performances and see overall market movements
How are stock index calculated?
It’s a value-weighted.
Each stock is weighted to its equity value/market capitalization
How are averages calculated?
Add each stock together/by # of stocks
What are major stock indices
U.S. – S&P 500
Canada - S&P / TSX Composite
Japan – Nikkei Stock Average
United Kingdom - FTSE 100 (pronounced “footsie”)
Germany – DAX
France – CAC 40
