Los 42.e

Question 1

What are the components of return for an equity investment?

Answer 1

Price appreciation, dividend payments, and for foreign-currency denominated equities, currency gains or losses.

Question 2

What is the historical significance of dividend reinvestment in total equity returns?

Answer 2

Dividends and their reinvestment have been a substantial contributor to long-term equity returns, significantly more so than price appreciation alone.

Question 3

How is the risk of equity securities typically measured?

Answer 3

Standard deviation of returns.

Question 4

Why is preferred stock generally considered less risky than common stock?

Answer 4

Preferred stock pays a fixed dividend (larger portion of return), has priority over common stock in dividend payments and liquidation, and has a par value claim in liquidation.

Question 6

What are callable shares and how do they affect risk and return?

Answer 6

Callable shares are shares of common and preferred shares that give issuer the option of buying them back from the investor at a predetermined price
Callable shares are more risky because the issuer can repurchase them at a set price if the market price rises, limiting upside potential. They typically have higher dividend yields.

Question 6

What are putable shares and how do they affect risk and return?

Answer 6

Putable shares are shares of common and preferred shares that give investors the option of selling them back to the issuer at a predetermined price
Putable shares are less risky because the investor can sell them back to the issuer at a fixed price if the market price falls. They typically have lower dividend yields.