Pre-Study: What Are Equities?

Question 1

Equity

Answer 1

Owning shares of stock in a publicly traded company.

Question 2

How does equity relate to stock?

Answer 2

Investors are the owners of the company, and equity is demonstrated by the shares of stock they own.

Question 3

Why do companies issue stocks?

Question 4

Why would investors want to buy stock?

Answer 4

Capital Appreciation
Dividend Payments
Ability to vote shares and influence the company

Question 5

What risks should investors be aware of when investing in stocks?

Question 6

What factors can affect the price of a stock?

Question 7

Dividends

Answer 7

A share of a companies annual profits

Question 8

Shares

Question 9

Market Price

Answer 9

The market’s appraisal of the worth of that company at a particular point in time. Price changes are driven by objectively measurable changes in business conditions, the economic environment, and changes in investor emotion.

Question 10

Capital Appreciation

Answer 10

When a stock rises in price

Question 11

Stock

Answer 11

Stock represents ownership of a company. Stock may be issued by any company, public or private, but for an individual equity portfolio investor only public companies are important.

Question 12

Shares of Stock

Answer 12

Represent the ownership of portions of the future earnings potential of the firm. Also referred to as equities.

Question 13

Public Company

Answer 13

Any company whose shares may be bought and sold using regulated brokers, exchanges, and public trading networks. They must adhere to legal requirements for governing themselves, and must publish periodic reports on their finances.

Question 14

Private Company

Answer 14

Has it’s own set of governance and reporting requirements, does not have to reveal it’s finances on demand to outsiders, and cannot issue tradable equity securities.

Question 15

Common Stock

Answer 15

Shares representing an equity stake in the firm. Companies may issue multiple classes of common stock, usually done to limit number of shareholders with influence over corporate governance.

Question 16

Common Shareholder

Answer 16

Owner of common stock. They can only receive dividends after all bondholders receive their interest payments, and other investors and creditors receive what they are due. They generally have the right to vote in board elections.

Question 17

Preferred Stock

Answer 17

Shares that give their holders a higher claim on any profits or proceeds from asset sales. Does not represent a company debt, but is a fixed claim on future profits.

Question 18

Preferred Shareholder

Answer 18

Owner of preferred stock. Shareholders receive dividends after bondholders but before common stockholders. Generally do not have any voting rights

Question 19

Restricted Stock

Answer 19

Generally represents the holding of active employees who earned the shares through incentive or employee programs.

Question 20

Restricted Stockholder

Answer 20

Owner of restricted stock. These shares generally have rights to dividends and distributions, but may be forfeited if regulations are not followed.

Question 21

Price-to-earnings ratio

Answer 21

Derived by diving the stock price by the company’s earnings per share. Used to determine what an investor is paying for the earning power of the company.

Question 22

Dividend Yield

Answer 22

Determined by dividing the amount of the dividend by the share price. Indicates what percent return the company is paying its investors.

Question 23

Payout Ratio

Answer 23

Represents the percentage of earning a company is paying out to it’s investors. Indicates what portion of the earnings are being reinvested into the growth of the company.

Question 24

Company Categories

Answer 24

Primary Business Focus
Size
Level of Business Maturity