New Finance/Investment Terms

Question 1

Preferred Stock: share in a public company. Combo of a Common Stock and a Bond

Answer 1

*Price (like common stock): varies with company’s earnings
*Dividends (like bonds): paid an agreed-upon dividend at regular intervals.
Done either as fixed amount or varied based on Libor
*You get your money back if you hold them until maturity (like bonds)
* Like bonds, they can be recalled before maturity and repurchased at issue price
*No Voting rights (unlike common stock)
*More expensive to buy
*Often issued as a last resort by the company (after getting as much as it can from Bonds and Common Stock)
*Paid out second after BONDS and before COMMON STOCK (paid third)
*Dividends Paid based on after-tax profits

Question 2

Employee Stock Option

Answer 2

• permits employees to buy stock at a discount
• no income is recognized when the option is granted
• recognition only changes when any stock acquired is disposed of

Question 3

Ordinary Loss

Answer 3

-are realized in the course of doing business and the sale of noncapital assets are typically ordinary.
Ordinary losses are generally considered to be better than capital losses because they can be used to offset your other sources of income.

Question 4

Capital Loss

Answer 4

Capital losses are more limited. They can only be used to offset capital gains and they’re subject to a $3,000 cap per year as a tax deduction.