Chapter 8

Question 1

What are common shares?

Answer 1

It represents ownership in a company

Question 2

What happens to the value of shares if the value of equity changes

Answer 2

The value of shares increase

Question 3

What are preferred shares?

Answer 3

They also represent ownership of a company that provides dividend payments.

Question 4

are dividends fixed?

Answer 4

yes they are and they are seen as fixed-income

Question 5

If an investor wants preferred shares what type of investor are they?

Answer 5

They want a steady income and a secure investment

Question 6

which shares do you see more significant gain and loss?

Answer 6

Common shares

Question 7

What is stock splitting

Answer 7

It is when a company splits the stock in half doubling the shares outstanding while cutting the price in half

Question 8

does stock splitting increase total outstanding equity

Answer 8

NOOO

Question 9

Exmple : 1.825 bln shares X $104.68 share price (what would stock split look like)?

Answer 9

Shares double
price in half

Question 10

Does a company have to pay out dividends

Answer 10

no

Question 11

What happens to share price after dividends are paid

Answer 11

Decreases by the amount of dividends

Question 12

What are two dividends a company can give out?

Answer 12

1. Cash dividend
2. Stock dividends

Question 13

What are ‘stock dividends’?

Answer 13

A company might give out stocks instead of cash

Question 14

What is a dividend reinvestment plan

Answer 14

It is when an investor would rather receive stock instead of the ‘cash dividend’

Question 15

Does all owners of shares get voting rights

Answer 15

mosty yes

Question 16

What are some weird voting preiveleges

Answer 16

Some sharehodlers might have multi-voting shares (they have higher voting power)

Question 17

What is tax treatment for dividends

Answer 17

It means those who receive dividends can get tax credits to reduce taxes paid

Question 18

How are capital gains paid for taxed?

Answer 18

Are taxed 50% of tax rates on interest or employment income

Question 19

Where are preferred shares ranked?

Answer 19

They are ranked behind debt holders but before common shareholders

Question 20

How are they ranked?

Answer 20

They get paid first when they went bankrupt

Question 21

Are preffered dividends paid nefore common dividends

Answer 21

Yes

Question 22

What is the value of preferred shares?

Answer 22

Its the PV of future cash flow

Question 23

are preffered dividends fixed?

Answer 23

yes

Question 24

is there a maturity date for preffered dividends

Answer 24

no they are in perpetutity

Question 25

How do you calculate ‘preferred diividends price’?

Answer 25

PV = c/r
c= dividends recieved
r = rate of return

Question 26

why should we look at dividend yield of a company?

Answer 26

It allows us to compare apples to apples to see which company is better

Question 27

How to calculate dividend yield

Answer 27

dividend/share price

Question 28

What are stock index’ or averages

Answer 28

Its how we are able to compare performances and see overall market movements

Question 29

How are stock index calculated?

Answer 29

It’s a value-weighted.

Each stock is weighted to its equity value/market capitalization

Question 30

How are averages calculated?

Answer 30

Add each stock together/by # of stocks

Question 31

What are major stock indices

Answer 31

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