Explain the common stock features and rights as though you are speaking to a novice
What will be an ideal response?
Answer: Common stocks have limited liability; that is, if the company goes bankrupt your liability is limited to the amount of your investment. The claim on income is not certain because the corporation is not obligated to pay any dividends. Dividends are paid only after all debt and other obligations have been paid, such as reinvesting the leftover earnings back into the company. On the other hand, if the company has a booming year the stockholders will make a bundle.
Should a company go bankrupt, the creditors have claim on its assets before the stockholders do, and therefore the stockholders may be out of luck. Stockholders are entitled to elect the company's officers and sometimes vote on policy. The number of votes depends upon the number of shares owned. When a firm thinks its stock price is too high for the smaller investor, the officers will "split" it into more shares. Sometimes a firm will repurchase shares so that each stockholder will own a larger proportion of the firm.
Common stock has book value, a return (dividend yield), earnings per share, and a market-to-book ratio.
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Which of the following statements is true?
A) Investment grade bonds are those rated single B and higher. B) Federal laws typically allow insurance companies and pension funds to purchase non-investment grade bonds. C) Because investors are risk averse, they require a premium to purchase a security that exposes them to default risk. D) All else equal, the higher a bond's rating the higher the coupon rate.
Catalog sales in the United States represent about 3 percent of overall retail sales; whereas in Germany they account for 5.8 percent. This suggests that there is a good chance of catalog marketing in Germany. This type of research is described as:
A) demand pattern analysis. B) income elastic analysis. C) time series displacement. D) polycentrism. E) comparative analysis.